by SHAHEERA AZNAM SHAH/ graphic by MZUKRI
YIELDS on Malaysian Government Securities (MGS) narrowed between 34 and 58 basis points (bps) at the end of April mainly due to the heightened expectation of a key interest-rate cut by Bank Negara Malaysia (BNM) in May, said Malaysian Rating Corp Bhd (MARC).
The rating agency said the demand for MGS was also supported by signs of the falling Covid-19 infection rates in the country which led to the anticipation of looser Movement Control Order (MCO) restrictions in May.
“By end-April, MGS yields shed between 34bps and 58bps on a bull-flattening bias as yields along the belly till the long-end of the curve fell more sharply compared to shorter tenures.
“The 20-year/30-year MGS yield spread narrowed to 96bps from 116bps. Both the three-year and 10-year MGS settled at new multi-year lows of 2.42% and 2.87% respectively,” it said in a statement on Monday.
MARC added that the recovery in global crude oil prices coupled with the US Federal Reserve’s pledge to keep interest rates near zero and continue its asset purchasing programmes have been keeping the MGS yields at a low level.
In line with the MGS, MARC noted the yields on investment-grade corporate bonds were lower with the AAA, AA and A-rated corporate bond yields falling between 25bps and 61bps.
The rating agency noted that foreign selling pressure of local bonds eased in April, while foreign investors remained the net sellers.
In April, the net foreign outflows from the local bond market amounted to RM2 billion, which brought the total foreign holdings to RM185.8 billion from RM187.8 billion in March.
BNM slashed its Overnight Policy Rate by 50bps to 2% on May 5, the lowest since the global financial crisis.
It was the third consecutive rate cut by BNM this year, following 25bps rate cuts each in January and March.
The central bank also announced that MGS and Government Investment Issue (GII) can be used by banks to fully meet the Statutory Reserve Requirement compliance effective May 16, 2020.
“Previously, BNM only allowed principal dealers to recognise both MGS and GII of up to RM1 billion.
“The measure is expected to release about RM16 billion worth of liquidity into Malaysia’s banking system,” MARC said.