RAM: Foreign investors returning to Malaysian bond market

Investors will be watching

PETALING JAYA: Interest in Malaysian bonds among foreign investors rose last month amid the prospects of an interest rate cut by the US Federal Reserve (Fed).

According to RAM Ratings, the increasing dovishness of central banks in major global economies amid weaker-than-expected economic data led to renewed demand for Malaysian bonds by foreign investors in June.

The credit rating agency noted that the local bond market registered a net inflow of RM6.6bil following two consecutive months of net selling.

“In line with the downward bias in global interest rates and the subsequent search for yields, domestic bond yields also retreated across the entire maturity spectrum and rating bands in June,” RAM said in a statement.

“The stronger demand in the secondary market is mirrored by the primary market, as underlined by the robust bid-to-cover (BTC) ratios at government bond auctions last month. Both issues that were up for tendering achieved BTC ratios of above two times.”

RAM Ratings also noted that demand for the longer-tenured 20-year Government Investment Issue achieved a remarkably strong BTC ratio of 4.28 times, while the five-year Malaysian Government Securities charted 2.48 times.

“Yields are expected to continue facing downward pressure in July, after investors received yet another clear sign of a looming rate cut from US Fed chairman Jerome Powell’s remarks to Congress on July 10, and another speech at a Paris event to commemorate Bretton Woods the following week,” RAM said.

Powell, during his speech, had reaffirmed the Fed’s concerns about economic prospects and was ready to take appropriate measures to maintain the recovery momentum.

“These successive signals had prompted the market to start pricing in a potential 50-basis-point (bps) cut, compared with the 25-bps reduction indicated by the Fed funds futures market before Powell’s speech,” RAM explained.

Meanwhile, RAM’s head of research Kristina Fong said there was a multitude of considerations for portfolio investors at this point – whether to pursue yields or seek safety in more conservative assets.

“As particular factors may dominate at different times, depending on prevailing market developments, volatile capital flows are envisaged to remain a key trend this year,” she said.


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