KUALA LUMPUR, Aug 1 — Domestic bond yields will likely maintain their downtrend this week as the demand for local bonds remains robust and with global bond yields declining following the recent US gross domestic product (GDP) report, said Kenanga Investment Bank Bhd (Kenanga IB).
Foreign demand for local bonds may improve in August following expected weakness in July after the European Central Bank’s (ECB) larger-than-expected 50 basis points (bps) rate hike, another 75bps hike by the US Federal Reserves (Fed), and RM19.0 billion worth domestic bonds having matured.
Nonetheless, it noted that foreign portfolio flows will still be generally pressured by global risk-aversion as recession fears remain paramount.
“Demand for domestic bonds remained strong last week,steered by lower global bond yields as recession remained a major concern and despite the US Fed raising rates by another 75bps,” it said. “As such, the weekly trading volume for government bonds increased by 16.1 per cent to RM16.65 billion compared to the previous week’s RM14.34 billion.” The Malaysian Government Securities (MGS) and Government Investment Issue (GII) yields fell last week, moving between -14.7 bps to -1.5 bps overall, the investment bank noted.
The 10-year MGS fell by 8.9 bps to 3.926 per cent, reaching its lowest level since March, whilst the 30-year (30Y) MGS yield decreased by 14.7 bps to 4.578 per cent.
“For the long-term outlook, we have revised down our end-2022 10-year MGS yield target to 4.35 per cent from 4.60 per cent previously, as global bond yields may register lower than initially expected amid growing recessionary risks,” it said.
Meanwhile, Kenanga IB noted that the ringgit strengthened slightly against the US dollar last week, following reports that the US economy had fallen into a technical recession. However, the ringgit failed to trade below the RM4.45-level due to a lack of domestic catalysts.
“As such, this week we expect the ringgit to trade range-bound against the US dollar amid ongoing instability in global markets,” it said, adding that its technical model suggests the ringgit will depreciate marginally against the dollar by 0.06 per cent to RM4.453. — Bernama
