Ringgit bond market to fare better

THE ringgit bond market should fare better this year unless there is a fallout from the tariffs imposed by US President Donald Trump.

Bond Pricing Agency Malaysia (BPAM) chief executive officer and executive director Meor Amri Meor Ayob notes that Malaysia’s economy is on a steady growth path and inflation remains low at this juncture.

“Bank Negara is also expected to hold the benchmark interest rate at 3% throughout the year, paving the way for a relatively stable interest rate environment which typically bodes well for the bond market,” he tells StarBiz 7.

He reckons on the whole, the ringgit bond market has been resilient against the flow-on effects of the tariffs imposed by Trump on certain countries, as well as against the ongoing broader trade war globally.

“Malaysian Government Securities (MGS) bond yields have been fluctuating within a narrow range for quite some time.

“While ringgit bond yields are slightly influenced by movements in US Treasury yields, which are impacted by the tariffs, the effect remains minimal,” Meor adds.

He does warn that “no one truly can predict Trump’s intentions.”

“Recently, he repeatedly threatened Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates – an alliance that includes Malaysia – with tariffs to discourage them from moving away from the US dollar.

“The impact of his impending actions remains to be seen,”

Several factors determine whether it’s a good time to buy bonds, says Meor.

These include the economic environment, interest rates, inflation and individual financial goals and risk tolerance.

“If you are looking for stability, income and diversification, bonds can be a valuable part of your investment portfolio, especially in uncertain or volatile markets.”

However, if interest rates are expected to rise significantly, one may want to be cautious about long-term bonds as their prices could decline.

“Always consider your financial goals, risk tolerance and investment horizon.”

Likewise, Winson Phoon, head of fixed income research at Maybank Investment Banking Group, says Malaysia’s macroeconomic backdrop with resilient growth, stable overnight policy rate and continued fiscal consolidation is supportive of local bonds.

“The MGS market should continue to trade with a low beta versus US Treasury yields given the favourable domestic supply-demand profiles,” says Phoon.

Uncertainties remain

He notes key risks are the uncertainties over US inflation and US Federal Reserve (Fed) rates.

“We have a neutral outlook on MGS and recommend staying invested,” he says, adding that auction demand has been strong.

“While the MGS yield curve is not compellingly steep, we are open to add slightly on long duration as a hedge against the global uncertainties,” adds Phoon.

“We forecast a healthy total return of 3% to 5% for ringgit government bonds in 2025. The ringgit credit spreads, however, have been relatively tight, which require careful credit selections.”

According to BPAM’s statement which was published last month, in 2024, new issuance of bonds and sukuk reached RM437.4bil, reflecting the market’s resilience amidst global challenges.

In the statement, Meor notes that despite the dip from RM547.5bil the previous year, the issuance volume reflected the continued confidence in the Malaysian capital market as a key financing platform for businesses and development projects.

“Malaysia must remain proactive and take a ‘forward-thinking’ approach in utilising its bond and sukuk market to drive key investments in infrastructure, technology and human capital to ensure the nation’s long-term economic growth.

In his recent 2025 Outlook: Checking on 5 Core Fixed Income Sectors report, Morgan Stanley Wealth Management head of portfolio construction and cross-asset strategy Steve Edwards writes that after a decades-long bull market for bonds, in which yields fell and prices were stable, many investors find themselves in unfamiliar terrain at the outset of a new cycle for fixed income.

“Bond rates remain well above the near-zero levels of the last decade, driven higher by resilient US economic growth and persistent inflationary pressures while the Fed cuts interest rates following a rapid series of hikes in 2022 to 2023.

“Investors’ concerns about the growing federal debt load and uncertainty around how the new presidential administration’s policies might unfold have only added to recent upward pressure on yields.”

He says despite the recent rise in US Treasury yields, a strong case remains for maintaining more exposure to US Treasuries in a taxable bond portfolio.

“That’s because in addition to their lower-risk profile, they currently offer attractive yields around 4.5%. This creates a ‘yield cushion’ that could help offset potential price declines should rates rise further.”

Additionally, Edwards states in the report that current lower valuations may offer attractive entry points for investors, especially if upcoming inflation reports align with, or fall below Wall Street’s expectations, spurring a rally.

“At the same time, investors should be mindful of ‘duration’, which is a measure of how sensitive a bond’s price is to interest rates. Longer-duration bonds see greater price declines when rates rise.

“Given the outlook for higher-for-longer rates, investors should aim for a ‘neutral’ overall duration, roughly in-line with that for a benchmark like the Bloomberg US Aggregate Bond Index.”

This may help balance the trade-offs between income and the potential risk of price swings, according to Edwards.