KUALA LUMPUR, June 22 — Foreign interest returned to the Malaysian bond market in May after three consecutive months of net outflows totalling RM22.4 billion, RAM Rating Services Bhd (RAM Ratings) said.
In its Bond Market Monthly report, RAM Ratings said this was supported by a more upbeat global sentiment.
“However, this skidded to an abrupt halt in early June amid heightened concerns over the escalating Covid-19 outbreak in the United States (US) and the consequent impact on the global economy,” it said.
The credit rating agency said the launch of the new National Economic Recovery Plan (Penjana) stimulus package totalling RM35 billion by the government further raised investors’ concerns about the wider fiscal deficit and debt levels.
It said the stimulus package is expected to widen Malaysia’s fiscal deficit to 5.8 per cent — 6.0 per cent of gross domestic product (GDP), from RAM Ratings’ previous projection of 4.8 per cent.
“These concerns pushed up the 10-year Malaysian Government Securities (MGS) yield by 25.5 basis points (bps) to a peak of 3.12 per cent on June 9, before swiftly retreating below three per cent.
“Since then, this benchmark yield has stayed above the level seen throughout May (average yield: 2.89 per cent), on account of persistent foreign investor risk aversion,” it said.
RAM Ratings said this trend suggested that foreign buying of MGS is likely to remain dull for the rest of June.
It said given the government’s intention to fund this deficit domestically, the credit rating agency has revised its MGS/Government Investment Issues (GII) issuance to RM155 billion-RM165 billion for 2020, from the previous RM135 billion-RM145 billion.
Over the longer term, it said, all-time low global interest rates amid liquidity-boosting measures by central banks would continue to suppress domestic bond yields.
It said the US Federal Reserve, at its last Federal Open Market Committee meeting on June 10, indicated that the benchmark short-term interest rate would remain near zero through 2022.
It added that, similarly, expectations of further Overnight Policy Rate (OPR) cuts by Bank Negara Malaysia (BNM) in the second half of this year would also keep a lid on domestic bond yields. — Bernama