Foreign central banks and governments have raised their share of Malaysian sovereign bonds to a record, underscoring the nation’s growing appeal as a reserve asset in a volatile global environment.
The institutions owned 36% of the Southeast Asian country’s notes as of March, the highest level in Bank Negara Malaysia data going back to 2015, and versus 29.4% in March 2025. The bonds have returned nearly 12% to dollar-based investors over the past year, outperforming all emerging-market peers in Asia.
Malaysia’s strong currency and stable economic growth have been a key allure for global investors. In recent months, the nation’s status as a net energy exporter has further enhanced the appeal of local assets, setting them apart from import dependent peers hit by the oil shock stemming from the Iran conflict.
"Ringgit government bonds offer one of the highest yields among EM Asia current-account surplus countries, and decent liquidity depth for an emerging market,” said Winson Phoon, head of fixed‑income research at Maybank Securities in Singapore. Malaysia stands out as one of the beneficiaries of a gradual shift by regional central banks to diversify reserves away from the US dollar, he added.
Malaysian government bonds have also been among the most stable among emerging Asian markets during the Middle East conflict, second only to Chinese notes, Phoon noted.
The nation’s 10-year yields have traded within a 15-basis point range since the start of the Iran war, data compiled by Bloomberg show. By comparison, yields in Indonesia, India, the Philippines, Thailand and South Korea have fluctuated by an average of 73 basis points over the same period.
Up more than 14% since the start of 2025, the ringgit remains Asia’s best-performing currency against the dollar by a wide margin. Malaysia has lifted its growth forecast for 2026 after the economy grew faster than estimated last year, overcoming challenges posed by US tariffs.
Malaysia’s exposure to the oil shock is lower relative to East Asia and Pacific peers, and it is increasingly being seen as a "safe haven” in the region, Apurva Sanghi, the World Bank’s lead economist for Malaysia, said last month.
While that relative insulation has benefited Malaysia so far, a prolonged Middle East conflict could still fuel inflationary pressures and raise subsidy costs for the government. That, in turn, could strain fiscal finances and pressure sovereign bonds.
The nation is estimated to have spent about $1.8 billion on fuel subsidies in April, roughly 10 times pre-war levels. Inflation accelerated to 1.7% in March, the fastest pace in over a year, but remained within the range that BNM has forecast for 2026.
The central bank kept its benchmark interest rate unchanged at 2.75% on Thursday, but warned that uncertainties surrounding the conflict will affect the outlook for growth and inflation.
Meanwhile, global funds have been piling into local bonds. International investors bought a net $947 million worth of notes in April, central bank data show, a second straight month of inflows.
The ringgit’s "strong performance is also benefiting the bond market, where global funds are investing in short-end bonds to capitalize on both interest rates and foreign-exchange exposure,” said Chandresh Jain, rates and FX strategist at BNP Paribas. - Bloomberg
