KUALA LUMPUR: Malaysian bonds are expected to benefit from the increasing likelihood that major central banks around the globe have concluded their tightening cycles, according to the Securities Commission's (SC) Capital Market Stability Review 2023.
The report said Bank Negara Malaysia at its Monetary Policy Committee (MPC) meeting on Nov 2 last year stated that the current monetary policy stance remained supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.
"The central bank's focus has now shifted to ensuring stable economic growth in the face of external risks such as the resumption of the US Federal Reserve's interest rate hike and China's credit contagion effects."
Malaysia's Overnight Policy Rate (OPR) currently stands at 3.00 per cent and Bank Negara has only raised the OPR once in 2023 (May: 2.75 per cent to 3.00 per cent).
The report said the Malaysian Government Securities (MGS) yields had trended upwards beginning May 2023, tracking the US Treasury yields after the Fed officials indicated that further tightening is likely, albeit at a slower pace.
After a brief pause in monetary policy tightening by the Fed, it said the MGS yields increased in September, pressured by a weaker ringgit and the Fed's higher-for-longer interest rate path.
Nonetheless, the report highlighted that the yields had started to decline towards the end of the year after US consumer price index (CPI) growth eased more than expected, showing additional signs of cooling price pressure.
"Meanwhile, the performance of the J.P. Morgan global aggregate bond and emerging market bond indices continued to improve, in line with the decline in US Treasury yields," it said.
The report said Malaysia's corporate bonds and sukuk continued to be resilient, with the default rate being low at 0.02 per cent from 0.18 per cent in 2022 given that there was only one default (RM200 million) compared to three defaults in 2022 (RM1.44 billion).
"This was against a backdrop of a monetary policy stance that is accommodative and supportive of the economy," it added.