KUALA LUMPUR: Malaysia has recorded positive net foreign flows of RM4.5 billion into the local bond market in February, the first net inflows in four months, Malaysian Rating Corp Bhd said.
MARC said this was due to a more dovish stance by the US Federal Reserve (Fed) as well as the deflation reported for Malaysia in January 2019. The strengthening of the ringgit was also a contributing factor, it added.
The rating agency said the total foreign holdings of local bonds climbed to RM187 billion from January’s RM182.5 billion.
As a result, foreign ownership of local bonds rose to 13 percent of total outstanding (January 2019: 12.8 per cent), it added.
MARC said the bulk of foreign inflows into the local bond market were due to the increase in foreign holdings in both Malaysian Government Securities (MGS) and Government Investment Issue (GII) papers.
Foreign holdings of MGS and GII papers surged by RM4.9 billion and RM0.8 billion to RM149.3 billion and RM17.4 billion (January 2019: MGS, RM144.4 billion; GII, RM16.6 billion).
Foreign ownership of both MGS and GII stood at 38.3 per cent and 5.5 percent of their total outstanding amounts in February (January 2019: MGS, 37.6 per cent; GII 5.3 per cent).
In February, the benchmark yield on the 10y MGS fell below four per cent for the first time since April 2018, MARC said.
The 10y yield shed as much as 18 bps to 3.89 per cent, down from 4.07 per cent at end-January.
MARC said the yield began to dip during the second week of the month following a dovish statement by the Fed which signalled its desire to pause its rate hike series and end its balance sheet runoff.
Malaysia’s stronger-than-expected gross domestic product growth in the fourth quarter of last year also helped to spur demand for MGS papers, it added.
By end-February 2019, the benchmark MGS yield curve bull-flattened as longer-dated yields fell more sharply than shorter-dated yields.
The 20y/3y and 10y/3y MGS spreads narrowed to 93 bps and 33 bps compared with 97 bps and 47 bps in the previous month.
MARC said the upbeat performance of local govvies was also mirrored in the primary market.
In February, the agency said the government received total bids of RM18.0 billion for its two public offerings.
Both the new issuance of RM4 billion 10.5y MGS and the reopening of the RM2 billion 15y GII garnered strong bid-to-cover (BTC) ratios of 2.5 times and 3.9 times.
“Demand for these issues was mainly supported by the renewed strength of the ringgit and the benign inflation outlook for Malaysia.”