KUALA LUMPUR: Malaysian Government Securities (MGS) and government investment issues (GII) yields were mixed last week, moving between -2.1bps (basis points) to 2.9bps overall.
Kenanga Investment Bank Bhd, in a report today, noted that the 10-year MGS initially rose 6.7bps to 3.25 per cent on 12 July, before declining to 3.19 per cent, 0.9bps higher than the previous week.
The firm said MGS and GII yields began the week higher following reports that Malaysia's daily vaccination rate breached 400,000 doses.
However, by mid-week, demand for bonds strengthened as Covid-19 infections rose to record highs and as US Treasury (UST) yields declined, the research firm noted.
Looking ahead, Kenanga said domestic yields may move rangebound this week as risk-off sentiment remains amid persistently high local Covid-19 cases.
Nevertheless, Malaysia's rising vaccination rates may begin to lift yields in the coming weeks, it said.
"In the medium to long-term, we still
expect yields to return to an uptrend as lockdown restrictions are eased in line with the National Recovery Plan.
"Despite foreign inflows for Asian bonds soaring to a two year high in June, foreign demand for Malaysian debt is expected to remain pressured in the near term.
"This is due to persistently high local
Covid-19 cases, ongoing Movement Control Order (MCO) measures, and political uncertainties.
"However, in the medium-term, we expect foreign
inflows to return as lockdown measures are eased. Additionally, yield differentials remain attractive, with the 10- year MGS-UST spread rising to 190.6bps compared to 182.8bps in the previous week.
Touching on the ringgit, Kenanga said the local note weakened against the US Dollar and posted the lowest weekly close since 31 July 2020 as the ringgit faced strong selling pressure amid rising domestic Covid-19 cases.
Even though the US 10-year Treasury yield fell below the 1.3 per cent level, the local note broke above the 4.20 per USD threshold
due to the rising USD index (DXY) and falling Brent crude oil price.
"The ringgit will likely trade in a tight range between 4.19 and 4.21 this week as Malaysia's new Covid-19 cases are expected
to remain in the five-digit territory in the near term amid increased testing capacity.
"The direction of the local note may continue to be influenced by crude oil prices, DXY and
market sentiment, potentially leading to further depreciation for the ringgit if investors turn more cautious," Kenanga noted.