by S BIRRUNTHA / photo by TMR FILE
THE Malaysian government bond yield curve (AMS) for the four-year to 30-year curve jumped 1 basis point (bps) to 15 bps month-to-month in late May due to a foreclosure National Complete which was announced on May 28.
Malaysian Rating Corp Bhd (MARC) said the long-term yield curve was also affected by the number of Covid-19 cases which began to rise to unprecedented levels, leading to increased calls for measures to stricter mobility and expectations of further fiscal stimulus. .
The rating agency added that AMS yields were also put under pressure by increased inflationary pressure, with the country’s consumer price index rising to 4.7% year-on-year from 1.7% in March.
“MGS started the month on a positive note with declining returns across the board in the first week.
“Demand has been supported by the sense of risk aversion emanating from local investors following the increase in Covid-19 cases and the introduction of the third order of movement control (MCO 3.0)”, a he said in a press release yesterday.
The rating agency added that the yield on the 10-year AMS fell to 3.03% on May 5, the lowest level in two months and ahead of the monetary policy committee meeting of Bank Negara Malaysia (BNM ) in May.
The BNM’s decision to keep the overnight key rate at 1.75% had little impact on the AMS as it was largely embedded in the price.
MARC noted that yields at the shorter end of the curve fell between 5 and 6 basis points as the full national foreclosure revived dovish bets.
The three-year and ten-year AMS yields were quoted at 2.31% and 3.24%, respectively (April: 2.37% and 3.15%).
Monthly trading volume fell to RM33.3 billion (April: RM42.9 billion) as investors waited on the sidelines of the U.S. Federal Reserve’s Federal Open Market Committee meeting in June for get concrete clues about future reduction plans.
In the corporate bond market, MARC noted that their returns were mixed in May, as investors took defensive positions throughout the month, with generic AAA-rated yields significantly lower by 1bp to 5bp on the curve. from three to ten years.
He noted that the yields on the lower rating bands were significantly higher, particularly the A rating band. Credit spreads for the generic AAA and AA rated spectrum were tighter overall, especially for terms of five and seven years in May.
“This was mainly due to a larger increase in AMS yields. Credit spreads for generic A-rated corporate bonds widened amid high risk aversion in domestic markets, ”he said.
“It was the lowest monthly pace since September of last year. Total foreign assets increased from RM 1.9 billion (April: + RM 6.4 billion) to RM 247.9 billion, equivalent to 14.7% (April: 14.8%) of total local bonds outstanding, ”said MARC.
The cumulative inflows from May 2020 to May 2021 amounted to Ringgit 62.1 billion compared to the post-global financial crisis period 2010/2011 of Ringgit 67.9 billion.
The moderation in foreign demand for local bonds is due to fears of a taper tantrum in the United States, heightened inflation expectations and the announcement of a total foreclosure in Malaysia, which has worsened the fiscal outlook and increased pressure on the debt supply, he added.
Foreign inflows in May were mainly supported by inflows in AMS (+2.4 billion RM).
Foreign MGS holdings stood at RM 191.7 billion, or 41.1% of the total MGS outstanding (April: 41.0%).
Year-to-date, cumulative net foreign currency inflows into the local bond market amounted to RM 25 billion (Jan-April 2020: RM -17.4 billion), exceeding total foreign currency inflows. in 2020 which amounted to RM18.3 billion.
Cumulative inflows from May 2020 to May 2021 amounted to Ringgit 62.1 billion, comparable to post-global financial crisis 2010/2011 of Ringgit 67.9 billion under quantitative easing programs massive.
“It was the longest monthly streak of foreign entries in history,” said MARC.