RAM: MGS yield to face downward pressure on OPR cut


RAM Rating Services Bhd expects the Malaysian Government Securities (MGS) yields to face some downward pressure as the market is considering Overnight Policy Rate (OPR) cut by Bank Negara Malaysia (BNM).

The rating company said the expectations were made following the central bank’s more cautious tone in its latest monetary policy statement, released on March 5.

“The yield of the benchmark 10-year MGS dived in the first half of February, falling below the psychological level of 4% on Feb 13 — the first time since April 11, 2018,” it said.

According to the agency, the yields to maturity of government and corporate bonds declined month-on-month across the rating spectrum, amid renewed foreign interest and resilient domestic support in the last month.

Foreign holdings in the local bond market have surged RM4.5 billion in February, breaking a three-month streak of outflows attributable to the US Federal Reserve’s (Fed) more dovish stance in its most recent monetary policy statement.

The Fed stated that it will be more “patient” in future policy decisions, which contrasts against its earlier message of “further gradual increases”, while benchmark interest rates remain unchanged during the Federal Open Market Committee meeting in January.

RAM Rating research head Kristina Fong said portfolio outflow pressures have been somewhat reduced by the Fed’s more dovish tone, the European Central Bank’s growth concerns and the subsequent pause in elevating policy rates.

“However, there may still be a flight to safety, especially as the US-China trade spat and Brexit dynamics have yet to be resolved,” she said.

The rating company also noted that government bond issuance was healthy in February, amounting to RM8 billion against the previous month’s RM13 billion.

“This was underpinned by the robust appetite for government bonds, as indicated by the bid-tocover (BTC) ratios.

“The 10-year MGS and 15-year Government Investment Issue issued in February achieved very strong BTC ratios of 2.54 and 3.91 times respectively,” it said.

Corporate bonds’ issuance totalled up to RM9.1 billion for February, an increase from the RM5.8 billion reported for January due to healthy issuance from both the quasi-government and private sectors.