KUALA LUMPUR: Malaysian bond yields faced upward pressure in tandem with increasing global yields amid the volatile world markets, said RAM Rating Services Bhd.
It said global stock markets underwent a massive sell-off and correction in early February.
“The turmoil had followed the release of US wage data and President Trump’s proposed expansionary budget, which signalled a possibly faster-than-expected acceleration in inflation.
“This may, in turn, hasten the pace of the US Federal Reserve’s rate-tightening cycle and increase the attractiveness of bond investments,” it said.
RAM said the yield on the 10-year US Treasury had rallied to 2.72 per cent as at end-January and rose further to 2.91 per cent in mid-February.
It said in line with rising global yields, those of Malaysian Government Securities (MGS) spiked up towards the end of January. The yield of one-year MGS had increased 28 basis points month-on-month to 3.19 per cent by end-January, and has exceeded 3.2 per cent since then.
Similarly, the 10-year MGS posted a 4.6 basis points month-on-month rise in yield to 3.96 per cent as at end-January, before increasing further to 4.04 per cent in mid-February.
“The second US government shutdown for the year – albeit short-lived - had also contributed to the widespread capital market volatility.
“Although the global stock markets have stopped plummeting, we cannot discount the risk of further market response to rising interest rates,” it said.
RAM said foreign investors had increased their holdings of Malaysian bonds by RM4.5 billion in January, elevating the value of foreign bond holdings to RM211.2 billion, representing a 2.2 per cent growth month-on-month.
“The inflows were mainly driven by demand for government securities, which posted a cumulative net inflow of RM4.9 billion at month–end.
“We believe the rise was also supported by expectations of rising domestic interest rates, coupled with the strengthening ringgit in January,” it said.
RAM said amid steady economic growth, Bank Negara Malaysia raised the overnight policy rate by 25 basis points to 3.25 per cent during the recent Monetary Policy Committee meeting in January - the first hike in more than three years.
The Malaysian corporate bond market kicked off 2018 with RM9.6 billion of bond and sukuk issuance in January, in contrast to the sluggish RM1.6 billion a year earlier.
Notably, RM8.6 billion of this amount originated from the private sector.
Similarly, issuance of government bonds, including short-term papers, came in at a healthy RM13.5 billion.