April saw a fourth straight month of net foreign inflows into the local bond market, albeit at a softer pace of RM1.5 billion compared to RM6.6 billion in March. Foreign investors continued to pour into local govvies (Apr: RM1.4 billion; Mar: RM7.9 billion), while net foreign flows in local corporate bonds turned positive at RM90 million (Mar: -RM1.2 billion). With sustained foreign demand for the local govvies, foreign holdings in this segment remained stable at 22.6% of the total outstanding for the month.

In April, gross issuance of Malaysian Government Securities (MGS)/Government Investment Issues (GII) increased to RM17.5 billion from RM14.5 billion in March, attributable to a jump in GII issuances (Apr: RM9.5 billion; Mar: RM5.0 billion). Five public offerings of MGS/GII raised a total of RM15.0 billion, namely the RM4.5 billion 10y GII reopening, the RM0.8 billion 30y MGS reopening, the RM2.2 billion 30y MGS reopening, the RM5.0 billion new MGS issue and RM2.5 billion 30y GII reopening. The remaining RM2.5 billion was raised through private placements.

Following a redemption amounting to RM21.1 billion in March, the volume of redeemed papers dropped to RM13.8 billion in April (MGS: RM11.9 billion; GII: RM1.9 billion).  As gross issuance was higher than redemption, outstanding MGS/GII inched up to RM1,033.6 billion from March’s RM1,029.9 billion.

Local govvies rallied in April in tandem with the downward trend in UST yields, which reflected the market’s expectation that the Fed’s rate tightening cycle may end soon. The decline in yields was further supported by forward expectations relating to a moderation in growth indicators, signalled by purchasing managers’ cautionary stance, lower exports and moderating industrial production. Furthermore, both core and headline inflation have declined in recent months and will likely moderate further this year.

We project inflation in 2023 to soften to 2.8% (2022: 3.3%) and maintain our 2023 GDP growth projection of 4.2% (2022: 8.7%). In view of the progress made towards interest rate policy normalisation, we expect Bank Negara Malaysia to maintain the OPR at 3.00% for the remainder of the year.