In October, foreign investors net sold RM6.3 billion worth of local bonds by trimming their holdings to RM248.7 billion or equivalent to 13.3% (September: 13.7%) of total outstanding bonds. It was the second consecutive month of net foreign selling, though considerably larger compared with September’s RM439.0 million. As a result, cumulative foreign flows YTD dipped deeper into negative territory to -RM7.9 billion.

The massive net foreign outflow was triggered by the US Fed’s hawkish monetary policy rhetoric that had unnerved international bond investors. It did not help that our weak ringgit briefly touched its historical low of 4.74 against the US dollar in October.

Amid cautious sentiment as investors looked for more clues about the direction of future monetary policy settings of major central banks, trading in the local govvies market was quiet overall in October. The transacted volume in the Malaysian Government Securities (MGS) space, a reflection of the soft market sentiment, was significantly lower by 38.5% m-o-m at RM26.7 billion.

Not surprisingly, local govvies ended the month on a mixed note with short-end yields ticking higher but long-end yields compressing lower. The selling of shorter-dated notes was driven by rising bets of Bank Negara Malaysia raising its Overnight Policy Rate (OPR) in November while purchases of the longer maturities were supported in part by a crude oil and crude palm oil price rally. Consequently, the MGS yield curve flattened with the 10/3 spread narrowing to 56 bps from 68 bps in September.

Notwithstanding the higher bond yields, funds raised in the local corporate bond market totalled RM16.1 billion in October, up by 56.3% from the previous month. It was the highest monthly gross issuance YTD, with all segments recording gains. The rated segment (Cagamas included) took the lead in terms of total gross issuances with RM11.6 billion, of which RM5.5 billion was issued by Amanat Lebuhraya Rakyat Berhad. Issuances of unrated corporate bonds also rose significantly, up by 78.6% to RM2.5 billion.

Consequently, YTD gross issuances of long-term corporate debt was higher at RM99.9 billion, compared with RM92.7 billion recorded in the corresponding period last year. This was mainly due to a sharp increase in issuances in the rated segment, which totalled RM70.7 billion, up 45.3% y-o-y from RM48.6 billion.