
Local Bond Performance Hinges On Final Tariff Deal
Across the curve, MGS and GII yields fell between 0.8 to 3.3 basis points (bps). The benchmark 10-year MGS dipped by 1.7 bps to 3.418%, while the 10-year GII decreased by 2.1 bps to 3.466%. Notably, the 3-year MGS experienced a more significant drop of 3.3 bps, as markets continue to price in the possibility of another rate cut by Bank Negara Malaysia (BNM). BNM had already reduced its Overnight Policy Rate (OPR) by 25 basis points to 2.75% earlier this month, marking its first cut since July 2020.
Domestically, the government's recent 'Appreciation Package' – which includes a one-off RM100 cash handout for all adult citizens and a planned reduction in RON95 fuel prices – is seen as supportive of consumption and easing living costs. This, coupled with a solid 4.5% advance Gross Domestic Product (GDP) reading for the second quarter of 2025, has contributed to the downward bias in yields. Steady demand, as observed in recent bond auctions, also added to the momentum.
Looking ahead, Kenanga Research expects yields to remain range-bound next week, albeit with a mild upward bias. The primary concern weighing on foreign demand for Malaysian bonds is the uncertainty surrounding US-Malaysia trade talks. Since the announcement of a potential 25.0% tariff on Malaysian exports on July 8, foreign investors have been net sellers of over RM5.0 billion in government bonds as of July 18.
A failure to secure tariff concessions by the August 1 deadline could further dampen investor sentiment and potentially pressure the ringgit. The upcoming Purchasing Managers' Index (PMI) release on August 1 will also be closely watched, with any upside surprise potentially offering modest support to the market.
For the ringgit, immediate support against the US dollar is noted at 4.22, with resistance at 4.23. Analysts anticipate elevated volatility in the 4.20–4.25/USD range in the coming week, given the confluence of economic data releases and the politically sensitive trade negotiations. Related

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