Malaysian bond market recorded net foreign inflows of RM4.4 bil in October, reversing September’s RM6.8 bil outflows. Foreign buying was concentrated in MGS and GII (combined RM3.0 bil), with additional interest in MTB/MITB and corporate bonds at RM431.0 mil and RM937.0 mil, respectively.
This renewed foreign interest reflected a narrowing UST–MGS yield differential as UST yields eased amid investor positioning at the start of last month to price in further potential rate cuts. The Federal Reserve’s (Fed) 25-basis-point policy rate cut at its October meeting and its announcement to end quantitative tightening in December also contributed to the fall. By end-October the 10-year UST yield eased to 4.11% (end-September: 4.16%), while the 10-year MGS yield rose to 3.52% (from 3.47%) over the same period.
As a result, the 10-year UST–MGS yield spread narrowed to 59.1 bps as at end-October (end-September: 69.4 bps), improving the appeal of local bonds.
However, market appetite may soften in November after the Fed adopted a more hawkish tone after the October rate cut decision amid inflation concerns, which led to a retreat in December rate cut expectations. According to the CME FedWatch Tool data, the market-assigned probability of a December cut fell to about 30% on 20 November, down from roughly 99% a month earlier. The 10-year UST–MGS yield spread widened back to 70.0 bps as of 19 November, which diminishes the relative yield advantage of the local bond market.
