KUALA LUMPUR: The Malaysian bond market is expected to remain bearish in June after a brief respite in May due to concerns about a wider fiscal deficit and debt levels.
Following the newly launched RM35bil Penjana stimulus package by the government, RAM Ratings Services Bhd said investors’ concerns pushed up the 10-year Malaysian government securities (MGS) yield by 25.5 basis points to a peak of 3.12% on June 9, before retreating below 3%.
“Since then, this benchmark yield has stayed above the level seen throughout May with an average yield of 2.89%, on account of persistent foreign investor risk aversion.
“This trend suggests that foreign buying of MGS is likely to remain dull for the rest of June, ” it added.
In May, RAM Ratings said foreign interest returned to the Malaysian bond market driven by a more upbeat global sentiment after three consecutive months of net outflows totalling to RM22.4bil.
It noted Penjana stimulus package is expected to widen Malaysia’s fiscal deficit to 5.8% to 6% of gross domestic product (GDP) from RAM Rating’s previous projection of 4.8%.
“Given the government’s intention to fund this deficit domestically, RAM has revised its MGS/GII issuance to RM155bil to RM165bil for 2020, from the previous RM135bil to RM145bil, ” the rating agency said.
In the long run, RAM Ratings said all-time low global interest rates amid liquidity-boosting measures by central banks would continue to suppress domestic bond yields.
On June 10, the US Federal Reserve indicated at the Federal Open Market Committee meeting that the benchmark short term interest rate would remain near zero through 2022.
“Similarly, expectations of further overnight policy rate cuts by Bank Negara in the second half of this year would also keep a lid on domestic bond yields, ” said RAM Ratings.
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