Foreign bond investors back to Malaysia amid prospects of looser US Fed policy

Weaker-than-expected economic data has sparked foreign bond investors’ interest in Malaysian bonds. — Reuters file pic
Weaker-than-expected economic data has sparked foreign bond investors’ interest in Malaysian bonds. — Reuters file pic

KUALA LUMPUR, July 18 — The increasing dovishness of central banks in major global economies amid weaker-than-expected economic data has sparked foreign bond investors’ interest in Malaysian bonds in June, with a net inflow of RM6.6 billion after two consecutive months of net selling.

In line with the downward bias in global interest rates and the subsequent search for yields, domestic bond yields also retreated across the entire maturity spectrum and rating bands in June, RAM Ratings said in a statement today.

“The stronger demand in the secondary market is mirrored by the primary market, as underlined by the robust bid-to-cover (BTC) ratios at government bond auctions last month. Both issues that were up for tendering achieved BTC ratios of above two times.

“Demand for the longer-tenured 20-year government investment issue (GII) achieved a remarkably strong BTC ratio of 4.28 times while the five-year Malaysian government securities (MGS) charted 2.48 times,” it said.

Yields are expected to continue facing downward pressure in July, after investors received yet another clear sign of a looming rate cut from the US Federal Reserve (Fed) chairman Jerome Powell’s remarks to Congress on July 10, and another speech at a Paris event to commemorate Bretton Woods the following week, RAM said.

Powell, during his speech, had reaffirmed the Fed’s concerns about economic prospects and was ready to take appropriate measures to maintain the recovery momentum.

“These successive signals had prompted the market to start pricing in a potential 50 basis points (bps) cut, compared with the 25 bps reduction indicated by the Fed funds futures market before Powell’s speech,” it added.

RAM’s head of research Kristina Fong said there is a multitude of considerations for portfolio investors at this point – whether to pursue yields or seek safety in more conservative assets.

“As particular factors may dominate at different times, depending on prevailing market developments, volatile capital flows are envisaged to remain a key trend this year,” she said. — Bernama

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