Strong Domestic Fundamentals Cap Rise In Malaysian Bond Yields Despite Global Headwinds -- Kenanga IB
KUALA LUMPUR, July 24 (Bernama) -- Strong domestic fundamentals have limited increases in Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields, even as global yields rise due to ongoing tensions between the United States and Iran and persistent concerns regarding the Strait of Hormuz.
In its Bond Market Weekly Outlook, Kenanga Investment Bank Bhd stated that the fundamentals include second-quarter gross domestic product growth which surpassed expectations, easing consumer price index in June and export growth that accelerated to a 46-month high.
“Expectations of higher Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah assistance further supported the outlook for domestic consumption,” it said.
Kenanga Investment said domestic yields nevertheless edged higher, tracking the rise in global yields as ongoing US-Iran tensions and persistent Strait of Hormuz concerns kept oil prices elevated and renewed energy-driven inflation concerns.
It said higher US Treasury and UK gilt yields also weighed on the local bond market.
This week, MGS and GII yields rose between 0.3 and 9.1 basis points (bps). The benchmark 10-year MGS yield edged up 5.1 bps to 3.688 per cent, while the 10-year GII yield rose 3.2 bps to 3.665 per cent.
On capital flows, the investment bank said foreign investors remained net sellers of government bonds last week, recording RM4.0 billion in net outflows.
“However, foreign institutions extended their buying streak in equities for a second consecutive week, posting RM600 million in net inflows,” it added.
Kenanga Investment expects local yields to remain mildly biased upwards as developments in West Asia continue to influence oil prices, inflation expectations and global bond markets.
“In view of the more challenging external backdrop and higher global yields, we have revised our third-quarter 2026 MGS yield forecast upward to 3.70 per cent from 3.43 per cent previously and our fourth-quarter 2026 forecast to 3.63 per cent from 3.40 per cent.
“Investors will closely watch next week’s meetings of the US Federal Open Market Committee and the Bank of Japan for indications regarding the global interest rates outlook. Additionally, Malaysia’s Producer Price Index release will offer further insights into domestic price pressures,” it said.
-- BERNAMA