KUALA LUMPUR: Foreign appetite for Malaysian Government Securities (MGS) declined slightly in October due to negative external developments including the ongoing US-China trade tensions, Malaysian Rating Corp Bhd (MARC) said.
In its monthly bond market and rating snapshot for October, it said other issues which impacted foreign appetite for the MGS were Brexit and geopolitical tensions in Hong Kong.
“Losses were then exacerbated by the reduction in global growth forecast by the International Monetary Fund, the US’ move to impose US$7.5bil tariff on EU goods and China’s weak third-quarter 2019 GDP, ” it said.
These negative factors saw foreign appetite for MGS waning in October, as they reduced their holdings to RM153.7bil from RM154.2bil in September.
“This contributed to most of the decline in foreign holdings of local bonds in October, followed by Malaysian Treasury Bills. Cumulative net foreign flows into local bonds for the first 10 months of 2019 fell to RM3.8bil from RM4.3bil in the first nine months, ” it added.
On the local front, the MGS was pressured by weaker-than-expected August trade data as well as the perception that Bank Negara will stay put on rates in the near term.
However, on the final day of the month, MGS yields started to ease following the latest reduction in the Federal Funds Rate that led to minor carry-trade activities.
By end-October, overall benchmark MGS yields settled higher by three basis points (bps) to 29 bps with losses mostly led by the back-end of the curve. Yields along the 15y-20y curve surged by 14 bps to 29 bps, steepening the yield curve. Yields on shorter tenures edged higher by three to nine bps. The benchmark yield on the 10y MGS settled about nine bps higher at 3.32%.
Demand for MGS papers at public auctions was underwhelming in October. Both the RM3bil 10-year and RM3.5bil 20-year reopening of MGS papers recorded weaker bid-to-cover (BTC) ratios of 1.2 times and 1.4 times compared with similar issues last year.