Foreign funds return to Malaysia’s bond market

PETALING JAYA: Foreign investors resumed their net buying activities in August totalling RM6.6bil after being net sellers in the previous two months, due to their increased confidence in Malaysia’s economy.

The Malaysian Rating Corp (MARC) said the resumption of foreign buying offset the outflows in June and July totalling RM4.1bil.

“Foreign holdings amounted to RM250.4bil (July: RM243.8bil) with foreign investors holding 14.6% of total outstanding local bonds (July: 14.3%),” it said.

MARC pointed out foreign inflows were mostly concentrated on Malaysian Government Securities (MGS) and Government Investment Issues (GII).

Foreign holdings of MGS rose by RM3.1bil to RM191.7bil (July: RM188.6bil), equivalent to 40.3% of total outstanding MGS (Jul: 40.4%).

Foreign holdings of GII expanded by RM3.2bil to RM34.4bil (July: RM31.2bil), equivalent to 8.6% of total outstanding GII (July: 7.8%).

“Foreign demand for MGS and GII was supported by increased confidence in Malaysia’s economy amid the rapid vaccination rates and gradual reopening of economic sectors.

MARC said despite the influx of foreign funds, MGS yields were pushed higher in the secondary market in August.

“MGS yields were traded higher as trade volume simmered due to local investors staying on the sidelines amid the political uncertainty in Malaysia.

“MGS yields were also influenced by higher yields in the United States Treasuries ahead of the conclusion of the Jackson Hole Forum on Aug 27.

“Investors were worried about the prospect of the announcement of tapering as there were signs of economic growth, albeit at a moderated pace, in the US,” it said.

MARC pointed that towards the final few days of the month, MGS yields started to ease slightly amid increased clarity on Malaysia’s political front following the appointment of the new Prime Minister.

By end-August, yield on the 10-year MGS settled four basis points (bps) higher at 3.21% (July: 3.17%).

Meanwhile, the total trade volume of MGS in August fell to RM31.9bil (July: RM42.8bil).

MARC also noted that in contrast, generic corporate bond yields were broadly lower in August that saw their credit spreads narrowing as MGS yields surged.

Generic AAA, AA and A-rated corporate bond yields declined by between one and five bps across the three-year to 15-year curve.

Most of the gains were concentrated along the curve, causing their yield curves to be steepened.

“Gains in corporate bonds were supported by the easing of movement restrictions and heightened foreign demand.

Meanwhile, trade volume for corporate bonds was slightly higher in August at RM13.3bil (July: RM12.3bil),” it said.

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