KUALA LUMPUR: Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields may return to an uptrend this week, following a late spike in the US Treasury yields last Friday and ahead of Bank Negara Malaysia's first monetary policy meeting this Wednesday.
Kenanga Research said it still expected the overnight policy rate to remain at 1.75 per cent until at least September this year.
The firm said MGS and GII were mixed last week, moving between -4.2 basis points (bps) to 1.9bps overall.
It added that the 10Y MGS yield declined by 2.7bps to 3.640 per cent.
"Demand for MGS and GII improved last week amid a downturn in global bond yields and leading to a strong auction for the new benchmark 10Y MGS.
"Additionally, foreign portfolio inflows made a surprise return to the Malaysian bond market, registering RM6.1 billion in December (November: -RM3.6 billion) amid easing Omicron concerns and high yield differentials of local bonds," it said.
Kenanga Research said foreign demand for Malaysian bonds might yet experience pressure in the near-term due to the US Fed's aggressive monetary policy tightening, despite the return of foreign inflows in December.
"Nonetheless, we still expect the bond market to register an overall net inflow this year, finding support from a strong domestic economic recovery and relatively high yield differentials," it said.
Meanwhile, Kenanga Research expects the ringgit to strengthen to around the 4.17 level against the US dollar, especially if the central bank delivered an upbeat economic assessment.
The local currency appreciated slightly against the greenback last week due to dollar weakness, amid rising commodity prices and a sell-off in US technology stocks.
"On the other hand, our technical model suggests the ringgit may depreciate 0.15 per cent to 4.184 against the US dollar," it added.