PETALING JAYA: Foreign bond holdings expanded to RM198.9 billion in June, from RM1.5 billion in May, on the back of the highest recorded net foreign inflows since May 2014 (RM13.5 billion), according to Malaysian Rating Corp Bhd (MARC).
Consequently, the total foreign share of outstanding local bonds as of end-June stood higher at 12.8%, compared with 12.2% in May.
“Most of the foreign inflows (67.2%) had gone into Malaysian Government Securities (MGS). As a result, foreign MGS holdings rose to RM156.9 billion, or 37.3% of the total outstanding. The inflows were mostly concentrated on the front end to the belly of the yield curve given the relatively larger narrowing of the positive MGS/US Treasury yield differentials along the 1-year 10-year curve,“ MARC said.
It added that global accommodative monetary policy, together with Malaysia’s subdued inflation outlook, had fuelled the foreign demand.
“Despite international agencies’ recent downgrade of Malaysia’s economic and rating outlook, foreign investors had 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 year-to-date.”
MGS yields had initially surged during the first week of June after the additional RM10 billion of economic stimulus measures fed into concerns of a wider fiscal deficit and higher debt in 2020.
However, the yields began pulling back in the following weeks as bargain-hunting activities ensued. MGS also gained from the slew of disappointing domestic economic data releases in the final week of June, which eventually led to the 25bps cut in the Overnight Policy Rate on July 7 to 1.75%.