Summary
- Malaysia’s external sector ended 2Q2023 on a weaker note, reinforcing our views of slower gross domestic product (GDP) growth data for the quarter.
- On the bond market, the yield spread between MGS and UST narrowed significantly and subsequently turned negative in July amid aggressive US rate tightening.
- While positive foreign flows into the bond market in June indicated solid demand for local government securities, the negative yield differentials with UST could lead to volatile foreign flows in the coming months.
- Furthermore, the advanced and emerging economies’ mixed stances on monetary policy could also lead to capital flow fluctuations and increased volatility in bond markets.