KUALA LUMPUR: Foreign interest in the Malaysian fixed-income market was subdued in October, with a marginal net outflow of RM541.30mil as investors sought higher risk assets, according to RAM Ratings.
This was in contrast with a net inflow of RM908mil in September, according to a statement issued on Monday.
“This was mainly driven by a perceived change in investors’ preference to higher risk-return assets, such as equities, amid renewed optimism on US-China trade talks in October. This was highlighted by the strong rally by the S&P 500 and the FBM KLCI in the same month, ” Kristina Fong, RAM’s head of research said.
RAM said thhe upward shift in US interest rate expectations also pushed US Treasury (UST) yields to a more attractive level, which may have prompted yield-seeking investors to switch away from Malaysian bonds.
The market had been gradually pricing in less easing by the US Federal Reserve (Fed), as indicated by the persistent uptrend in long-term yields in the last two months. These expectations were reaffirmed during the Fed’s most recent monetary policy meeting on 30 October.
Despite implementing its third rate cut this year, the Fed had exhibited a less dovish stance while also signalling a pause in rate movements.
Given the Fed’s overall tone, the benchmark 10-year UST yield continued trending upwards, extending October’s pattern of declining yield differentials between the 10-year MGS and UST.
RAM said at home, government bond issuance was relatively robust in October.
The total amount of Malaysian Government Securities (MGS) and Government Investment Issues (GII) rose to RM9bil from RM5.5bil in September.
“This brought the issuance level to RM102.0 bil in January to October 2019, which was on track towards meeting our forecast of RM110 bil to RM120 bil for the year.
“Going forward, we anticipate MGS/GII issuance to increase to RM115bil-RM125 bil in 2020, taking into account the Government’s deficit financing requirements under Budget 2020 and the refinancing of maturing debts next year, ” RAM said.
In October, corporate bond issuance was RM5.9bil compared with RM14.90bil in September.
In view of the healthy pace of issuance to date, corporate issuance stood at RM112.1 bil as at end-October, topping the lower end of RAM's forecast of RM110bil to RM120bil for 2019.
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