Malaysian bonds foreign selloff eases significantly in April

PETALING JAYA: Foreign holding of Malaysian bonds contracted by RM2 billion April, in contrast to the RM12.3 billion contraction in the previous month, attributable to the abatement of investors’ panic in the preceding two month, which had been led by asset-management firms.

“The raft of global and domestic liquidity-boosting measures in April appear to have managed to assuage investors’ fears while stabilising market sentiment,” RAM Ratings said in a report.

That said, the rating agency noted that April still represented the third consecutive month of outflows, as foreign investors’ appetite for emerging market assets remained constrained by heightened global uncertainties amid the Covid-19 pandemic.

It pointed out that foreign investors’ less downbeat sentiment has also alleviated the upward pressure on yields.

“This, along with the pricing in of a potential 50 basis point (bps) cut in the overnight policy rate (OPR) in early May, had led to a broad-based decline in yields of government and corporate bonds in April,” said RAM Ratings.

In addition, the lowering of the statutory reserve requirement (SRR) while allowing principal dealers to recognise up to RM1 billion of Malaysian government securities (MGS) and Malaysian government investment issues (MGII) as part of their SRR compliance may also have supported domestic demand for fixed-income securities, in turn lowering yields.

It highlighted that the yield of the benchmark 10-year MGS plunged 51.3 bps to 2.9% as at end-April, reversing the 56.9 bps surge of a month earlier.

Looking ahead, the rating agency cautioned that bond yields still face downside pressure as recent measures broadening the usage of MGS/GII to meet SRR requirements should support demand for government bonds.

It also stated that the expectations of further OPR cuts in 2H’20 should also keep domestic bond yields in check.