THE Malaysian bond market continues to show resilience and attract foreign investors, with the fifth consecutive month of net foreign inflows reaching RM3 billion in May, according to MARC Ratings Bhd.

The figure represents a significant increase from the RM1.5 billion recorded in the previous month, it said in a release today.

MARC said the steady foreign demand for local bonds reflects their attractiveness in the face of anticipated inflation moderation this year.

Net foreign inflows for local government bonds (govvies) amounted to RM3.3 billion, surpassing the RM1.4 billion in April, it said.

However, net foreign outflows of RM0.3 billion were observed for local corporate bonds during the same period.

Overall, the ratings agency said, foreign holdings of outstanding bonds remained stable at 13.6%.

According to MARC, May saw gross issuance of Malaysian Government Securities (MGS)/Government Investment Issues (GII) remain robust at RM15 billion, with the MGS segment contributing RM9.5 billion to the total.

Meanwhile, the GII experienced redemptions totaling RM13 billion.

As gross issuance exceeded redemption, the outstanding MGS/GII increased to RM1,035.6 billion, up from April’s RM1,033.6 billion.

MARC said although local govvies experienced a rally in the previous two months as US Treasury (UST) yields declined, May ended on a mixed note.

It said that demand for medium-term government bonds remained steady, leading to a three basis points decline in MGS yields along the 7-year to 10-year part of the curve.

It noted that the strong 5.6% gross domestic product (GDP) growth in the first quarter of 2023, surpassing consensus estimates of 5.1%, may indicate an interim peak in growth.

MARC said this expectation of slower growth and inflation supports the bond market.

However, yields on the front end and long-term MGS increased by one to seven basis points, in line with the rise in the overnight policy rate (OPR) and UST yields.

In terms of inflation, MARC said both core and headline inflation are expected to continue easing due to the higher base effect from the previous year.

It is projected that inflation in 2023 will soften to 2.8%, down from 3.3% in 2022.

Furthermore, it noted that Bank Negara Malaysia’s (BNM) recent 25-basis-point OPR hike to 3.00% in May indicates that the current rate tightening cycle may have reached its final phase.

While it is anticipated that BNM will maintain the OPR at 3.00% for the remainder of the year, AMRC said his positive outlook is likely to enhance investor sentiment and provide further support for the local bond market moving forward. – TMR / pic TMR File