KUALA LUMPUR: Malaysian government securities (MGS) has underperformed US Treasuries (UST) across all benchmark tenors, according to United Overseas Bank (Malaysia) Bhd (UOB Malaysia).
The bank said US rates market volatility had been the headline act over the past month and the main takeaway was that investors had abruptly switched from hawkish to dovish in their US monetary policy expectations.
Amid this storm, UOB Malaysia said the magnitude of yield changes experienced by MGS and Malaysian government investment issues (GII) had been muted by comparison.
"MGS underperformed UST across all benchmark tenures, but its performance against the ringgit interest rate swaps (IRS) and GII was more mixed.
"Shorter dated MGS broadly held up well against IRS and GII, with yield spreads narrowing in the past month. Yield spreads were wider from the intermediate to longer end on stickier MGS yields," it said in a note.
UOB Malaysia said MGS and GII yields had converged to tight levels this year for both the 10-year and 30-year tenures.
As of April 3, the 10-year spread is at 5.0 basis point (bps) and the 30-year spread is around 0bps.
"These are both lower than the 12-month average MGS-GII spread which comes in at around -7.0bps for both tenures.
"Should it persist, tightness in the spread could take some gloss off the GII auctions," it said.
April's auction schedule will see a reopening of the October 32 GII (10 years), followed by a new five-year MGS issue, and ends with a reopening of May 52 GII (30 years).
The previous five-year MGS auction was in November last year which drew a relatively low bid to-cover (BTC) of 1.59 times.
However, January's five-year GII auction was a strong one with BTC of 3.4 times. In both instances, RM5 billion was offered.
"We have had a couple of 10-year auctions this year with varying BTC outcomes. January's 10-year GII auction saw a BTC of 2.09 times and last month's 10-year MGS auction was covered 1.67 times.
"Supply for Apri's auctions will probably be in line with recent offerings.
"A steeper yield curve is also helpful in firming up support for the 10-year and 30-year GII from investors with a view that the overnight policy rate is at/close to its peak and are looking to ride down the curve ahead of the next easing cycle," it added.