June net foreign bond inflows at six-year high

Foreign bond holdings grew by RM11.6bil last month to RM198.9bil on the back of the highest recorded net foreign inflows since May 2014, which was RM13.5bil.

PETALING JAYA: Net foreign bond inflows surged to a six-year high in June.

Yields for the 10-year Malaysian Government Securities (MGS), as shown on the official Bank Negara website, fell to a record low to 2.63% yesterday.

Foreign bond holdings grew by RM11.6bil last month to RM198.9bil on the back of the highest recorded net foreign inflows since May 2014, which was RM13.5bil.

“The total foreign share of outstanding local bonds as of end-June stood higher at 12.8% (from May at 12.2%). Most of the foreign inflows (67.2%) had gone into MGS, ” Malaysian Rating Corp Bhd (MARC) said in a statement.

It said foreigners holding MGS rose to RM156.9bil from RM149.1bil in May, or 37.3% of the total outstanding amount of MGS.

MARC said these inflows were mostly concentrated on the front end to the belly of the yield curve.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told StarBiz that Malaysia has been holding up well and has been attractive to foreign investors despite the reduced overnight policy rate.

“Interest rates globally have continued to trend lower as well. Malaysia’s yields are still quite high when compared to the other advanced economies, ” Lee said.

“Malaysia’s papers have historically been well sought-after by foreign investors. Whether or not this will positively impact the ringgit will also depend on many other factors, ” he added.

He said the local currency was also affected by inflows or outflows in the stock market, and other macro-economic indicators such as the budget deficit and the country’s overall debt levels.

MARC said that a global accommodative monetary policy, together with Malaysia’s subdued inflation outlook had fuelled foreign demand of debt papers.

“Despite international agencies’ recent downgrade of Malaysia’s economic and rating outlook, foreign investors have continued to add local bonds to their portfolios.

“This is not surprising, given that the 10-year MGS, compared to its Asean bond counterparts of similar international rating bands and below, offered the highest real yield in the year-to-date period, ” the ratings agency said.

MGS yields had initially surged during the first week of June after the additional RM10bil of economic stimulus measures added to concerns of a wider fiscal deficit and higher debt in 2020, it said.

“However, the yields began pulling back in the following weeks as bargain-hunting activities ensued, ” it said.

It noted that MGS yields remained broadly higher as of end-June compared to the previous month by five basis points (bps) to 19bps along the seven-year and 20-year curve.

Nevertheless, MARC said the MGS market remained resilient, as yields were still lower compared to their peak levels in March.