Malaysian Bond Yields Soften Amid Rate Cut Expectation
Across the curve, yields moved between -6.9 and 0.4 basis points (bps). Notably, the benchmark 10-year MGS dipped by 6.9 bps to 3.454%, while the 10-year GII decreased by 2.0 bps to 3.498%.
Kenanga Research noted that the softening of local yields was primarily driven by the market actively pricing in a probable 25 bps rate cut by BNM. Demand for Malaysian bonds was further bolstered by strong auction results, reflecting sustained interest from domestic investors. Improving macroeconomic signals also contributed to positive sentiment, with a rebound in Purchasing Managers' Index data lifting confidence. Renewed optimism surrounding potential Foreign Direct Investment inflows reinforced the growth outlook, and constructive signals from ongoing US tariff talks added to the positive tone.
Furthermore, the recent expansion of the Sales and Service Tax, effective July 1 and projected to generate RM10.0 billion annually, underscored Malaysia's fiscal discipline, helping to anchor demand for local bonds.
Looking ahead, the house views the 10-year MGS yield to hover near current levels ahead of the upcoming BNM meeting. However, a divergence exists between market expectations and some house views, which anticipate the Overnight Policy Rate to remain unchanged at 3.00%. This contrast suggests that yields may rebound slightly above 3.50%. Despite this potential rebound, demand is expected to remain resilient, particularly if macro indicators continue to improve.
Malaysia's relative advantage ahead of the expected resumption of Trump-era tariffs on July 9 may provide additional support for bonds, although persistent external risks continue to warrant caution. Related
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