Net foreign flows into the local bond market extended for the third straight month in March. Rising to RM6.6 billion from February’s RM4.3 billion, there were higher flows into local govvies (Mar: RM7.9 billion; Feb: RM4.7 billion). Local corporate bonds, on the other hand, saw wider net foreign outflows (Mar: RM1.2 billion; Feb: -RM0.4 billion). With foreign investors pouring into local govvies, foreign holdings in this segment increased to 22.6% of the total outstanding from February’s 21.8%.

In March, gross issuance of MGS/GII fell 31.0% to RM14.5 billion from February’s RM21.0 billion mainly due to lower GII issuances (Mar: RM5.0 billion; Feb: RM10.5 billion). Three public offerings of MGS/GII raised a total of RM12.0 billion, namely the RM4.5 billion 10y MGS reopening, the RM5.0 billion 7y GII reopening and a RM2.5 billion new 30y MGS issue. Another RM2.5 billion of 30y MGS was raised through private placements.

After three straight months of zero redemption, the volume of redeemed papers jumped to RM21.1 billion in March with MGS making up 91.9% and GII taking up the balance. Given lower issuances and the surge in redemptions, outstanding MGS/GII inched lower to RM1,029.9 billion from February’s RM1,036.5 billion.

In the secondary market, local govvies regained some strength in March after rising global bond yields triggered intense selling pressure in February. The renewed demand for local govvies reflected optimism over Malaysia’s growth momentum as it remained well-insulated from the banking turmoil in the advanced economies. BNM’s decision to hold the OPR at 2.75% at its March meeting also helped. Consequently, MGS yields mostly eased during the month.

We are maintaining our 2023 GDP growth projection of 4.2% (2022: 8.7%), which is near the low end of the official forecast range of 4.0%-5.0%. While we foresee some growth support from domestic demand, downside risks from weaker global growth amid tighter global financial conditions remain significant. On the inflation front, we foresee inflation in 2023 averaging to 2.8%, the low end of BNM’s projected range of between 2.8% and 3.3%.