Posted Date: September 28, 2022

After two consecutive months of outflows, the local bond market recorded net foreign inflows as investors returned to emerging markets amid easing inflationary fears. In August, the local bond market logged net foreign inflows of RM5.6 billion (July: -RM3.5 billion). All segments registered net foreign inflows. Malaysian Government Securities (MGS) led with RM3.5 billion (July: -RM3.3 billion), followed by Malaysian Islamic Treasury Bills (MITB) (August: RM1.8 billion; July: RM1.3 billion). Corporate bonds also registered net foreign inflows that amounted to RM69.0 million (July: -RM187.1 million).

Consequently, total foreign holdings as a percentage of total local bonds outstanding rose slightly to 13.9% in August (July: 13.7%). As at end-August, the share of foreign holdings in MGS, Malaysian Treasury Bills (MTB), and MITB all stood higher while that of Government Investment Issues (GII) fell slightly. Meanwhile, that of corporate bonds remained unchanged from the previous month at 1.6%.

YTD, cumulative foreign flows into the local bond market improved in August, thanks to the RM5.6 billion of net foreign inflows, though it continued to be in negative territory (Jan-Aug 2022: -RM1.2 billion; Jan-Aug 2021: +RM27.4 billion).

Total MGS/GII outstanding expanded to RM965.7 billion (July: RM958.8 billion) amid lower redemptions (August: RM8.6 billion; July: RM19.0 billion). The increase was driven by the MGS segment, which saw issuances surge to RM10.0 billion (July: RM5.0 billion). Meanwhile, GII issuances went the other direction, falling 47.6% (August: RM5.5 billion; July: RM10.5 billion).

Local govvies ended August on a mixed note, with the 2Q2022 GDP upside surprise and Fitch Ratings' comment that strong economic performance may facilitate fiscal consolidation seemingly having little impact. Strong foreign buying interest was seen in the front end following slower-than-expected July inflation in the US, which helped ease market concerns over US Fed hawkishness.

As a result, the 3y MGS yield shed 17 bps m-o-m to settle at 3.34%. Some intermediates to long-term MGS, on the other hand, saw some profit taking after the previous month's gains. As a result, MGS yields along the 7y15y curve climbed by between 1 bp to 9 bps by month's close. Meanwhile, the 10y/3y spread widened to 66 bps from 40 bps in the previous month.

The full report can be accessed here.

Lyana Zainal Abidin, +603-2717 2912/ norlyana@marc.com.my
Lee Si Xin, +603-2717 2942/ sixin@marc.com.my
Quah Boon Huat, +603-2717 2931/ boonhuat@marc.com.my