Bond sales see biggest foreign buy since March 2016

by TMR/ graphic by MZUKRI

JUNE local bond sales saw biggest monthly net foreign inflow since March 2016.

Foreign buyers mopped up RM11.6 billion worth of domestic bond securities in June, recording the biggest monthly net foreign inflow since March 2016.

RAM Rating Services Bhd (RAM Ratings) said the return of foreign interest reflects declining risk aversion towards emerging markets due to stabilising oil prices and a resumption in economic activities as lockdowns ease in this region.

Increased global liquidity amid central banks’ quantitative-easing measures may have also encouraged more foreign inflows.

RAM Ratings said yields remained elevated in the first half (1H) of June reflecting supply risks arising from the sharp uptick of Malaysia’s projected fiscal deficit after the latest round of additional stimulus programmes which would be funded domestically.

Yields began to gradually retreat towards the 2H of June, as the possibility of another Overnight Policy Rate (OPR) cut at the central bank’s meeting on July 7 loomed.

As the 25-basis-point (bps) cut materialised, bringing the OPR to a record low of 1.75%, bond yields nosedived across the maturity spectrum in early July. The benchmark 10-year Malaysian Government Securities yield fell 20.8bps between end-June and July 16.

“The prospect of further monetary loosening is envisaged to keep a lid on yields in the near term. Looking ahead, RAM Ratings expects another 25bps cut with the OPR possibly ending the year at 1.5%,” the rating agency wrote in a statement last Friday.