fbpx

Malaysian bonds show promising yield this week, says Kenanga

KUALA LUMPUR: Malaysian bond yields may continue to increase this week in reaction to last week’s rise in US Treasury yields and on the back of improving domestic recovery optimism.

Kenanga Investment Bank Bhd still expect Malaysian government securities (MGS) and government investment issues (GII) yields to chart an uptrend in the medium to long-term as the research firm maintain its 2021 gross domestic product (GDP) forecast at 6.5 per cent.

“Nevertheless, local bonds may find some risk-off demand in the near-term due to the reinstatement of a nationwide Movement Control Order (MCO 3.0),” the research firm said in a note today.

Kenanga said MGS and GII yields mostly increased last week, except for the seven-year GII.

The 10-year MGS rose 5.9bps to 3.13 per cent, whilst the 3-year MGS only increased by 0.4bps to 2.32 per cent, steepening the yield curve.

The firm further said demand for MGS/GII was weak ahead of the Hari Raya holiday, with selling pressure driven by the better-than-expected first quarter (Q1) 2021 GDP growth at -0.5 per cent.

Additionally, MGS/GII yields increased in tandem with rising US Treasury yields amid growing inflation expectations in the US.

Kenanga also noted that demand for US Treasury was initially pressured last week amid growing inflation concerns among investors.

This culminated in a one-day surge in yields on 12 May, as the US inflation rate soared to 4.2 per cent year-on-year (yoy) in April as compared to 2.6 per cent in March, its highest reading since September 2008.

Nevertheless, demand for US Treasury improved by the end of the week, on the back of weaker-than expected retail sales data at zero in April compared to 10.7 per cent in March.

“We expect US Treasury yields to return to their uptrend in the long-term, as the US charts a strong economic recovery,” the research firms said.

Moving on, Kenanga said foreign inflows into the debt market continued for the twelfth consecutive month in April, driven by improving recovery optimism and FTSE Russell’s positive decision on Malaysian bonds.

“As such, we still expect foreign demand to sustain in the medium-term, however inflows may moderate in the near-term amid the return of MCO 3.0,” the firm said.

Source: NST