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BusinessToday
3 days ago
- Business
- BusinessToday
Local Bond Performance Hinges On Final Tariff Deal
Malaysian Government Securities (MGS) and Government Investment Issues (GII) saw their yields decline this week, a movement partly influenced by softer US Treasury yields and domestic policy measures. However, upcoming tariff risks ahead of the August 1 deadline are poised to introduce volatility. 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
BusinessToday
05-07-2025
- Business
- BusinessToday
Malaysian Bond Yields Soften Amid Rate Cut Expectation
Malaysian Government Securities and Government Investment Issues yields largely continued their downward drift this week, influenced by market expectations of a rate cut by Bank Negara Malaysia and robust domestic investor demand. 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
BusinessToday
07-06-2025
- Business
- BusinessToday
Local Yields May Trade Lower On US Optimism
Yields on Malaysian government bonds closed mixed this week, with cautious optimism around global trade and soft US economic data helping to anchor the local fixed-income market. According to Kenanga Research, yields on Malaysian Government Securities (MGS) and Government Investment Issues (GII) moved within a narrow range of -4.2 to +0.9 basis points (bps) across the curve. The benchmark 10-year MGS yield eased 1.6 bps to 3.518% The 10-year GII dipped 0.2 bps to 3.532% Global and Domestic Drivers The slight decline in long-term yields closely followed movements in US Treasuries, which reacted to positive signals in US-China trade negotiations. The improved trade outlook, combined with softer US economic data, has reinforced expectations of an earlier rate cut by the US Federal Reserve. On the domestic front, a modest improvement in Malaysia's Purchasing Managers' Index (PMI) and continued export growth to African markets have supported confidence in local bonds, contributing to the relatively stable yield environment. Outlook: Stable Yields with Eyes on US Inflation Kenanga expects local bond yields to remain stable in the near term, with upcoming economic data — including industrial production, retail sales, and labour market statistics — likely to guide investor sentiment. However, the research house cautioned that any upside surprise in US inflation data could prompt global bond yields to rise, potentially spilling over into the Malaysian market. Additionally, renewed uncertainty in US tariff policy could reintroduce volatility. 'Investors should stay alert to both domestic data and global developments, especially updates on tariff talks,' Kenanga stated. Related
