KUALA LUMPUR (July 17): RAM Holdings Bhd said after two tepid months, foreign buyers returned to the Malaysian bond market in June, mopping up RM11.6 billion in domestic bond securities. This is the biggest monthly net foreign inflow since March 2016.

In a statement today, the credit rating agency said the return of foreign interest reflects declining risk aversion towards emerging markets due to stabilising oil prices and a resumption in economic activities as lockdowns ease in this region.

“Increased global liquidity amid central banks’ quantitative easing measures may have also encouraged more foreign inflows,” it added.

However, RAM said yields remained elevated in the first half of June, reflecting supply risks arising from the sharp uptick of Malaysia’s projected fiscal deficit after the latest round of additional stimulus programmes that will be funded domestically.

“Concern over the implications of a greater supply of government issues this year pushed the 10-year Malaysian Government Securities (MGS) yield up to a peak of 3.12% on June 9 (end-May it was 2.87%). Investors may also have demanded a risk premium due to the IMF's bleaker global growth projection and the revision of S&P Global Ratings’ outlook on Malaysia’s sovereign rating, from stable to negative in June.”

RAM noted yields began to gradually retreat towards the second half of June, as the possibility of another overnight policy rate (OPR) cut at the monetary policy committee meeting on July 7 loomed.

As the 25 basis points (bps) cut materialised, lowering OPR to a record low of 1.75%, bond yields nosedived across the maturity spectrum in early July, it said.

“This saw the benchmark 10-year MGS yield falling 20.8 bps between end-June and July 16. The prospect of further monetary loosening is envisaged to keep a lid on yields in the near term.”

Looking ahead, RAM said it expects another 25 bps cut with the OPR possibly ending the year at 1.5%.