PETALING JAYA: Foreign interest in the Malaysian fixed-income market was subdued in October, with a marginal net outflow of RM541.3 million, according to RAM Ratings.
This compares with a net inflow of RM908 million in September.
“This was mainly driven by a perceived change in investors’ preference to higher risk-return assets, such as equities, amid renewed optimism on US-China trade talks in October. This was highlighted by the strong rally by the S&P 500 and the FBM KLCI in the same month,” said its head of research Kristina Fong (pix) in a statement today.
RAM said the upward shift in US interest rate expectations had also pushed US Treasury (UST) yields to a more attractive level, which may have prompted yield-seeking investors to switch away from Malaysian bonds.
“The market had been gradually pricing in less easing by the US Federal Reserve (Fed), as indicated by the persistent uptrend in long-term yields in the last two months. These expectations were reaffirmed during the Fed’s most recent monetary policy meeting on Oct 30.
“Despite implementing its third rate cut this year, the Fed had exhibited a less dovish stance while also signalling a pause in rate movements. Given the Fed’s overall tone, the benchmark 10-year UST yield continued trending upwards, extending October’s pattern of declining yield differentials between the 10-year MGS (Malaysian Government Securities) and UST.”
RAM noted that Malaysia’s government bond issuance was relatively robust in October.
“MGS and GII (Government Investment Issue) issuance summed up to RM9 billion compared to RM5.5 billion the preceding month. This brought the issuance level to RM102 billion in the first 10 months of 2019 – on track towards meeting our forecast of RM110-RM120 billion for the year.”
The rating agency expects MGS/GII issuance to increase to RM115-RM125 billion in 2020, taking into account the government’s deficit financing requirements under Budget 2020 and the refinancing of maturing debts next year.
Meanwhile, it said corporate bond issuance remained relatively healthy in October, amounting to RM5.9 billion (September: RM14.9 billion). “In view of the healthy pace of issuance to date, corporate issuance stood at RM112.1 billion as at end-October, topping the lower end of our forecast of RM110-RM120 billion for 2019.”
