KUALA LUMPUR: Foreign holdings of Malaysian bonds contracted RM2 bil in April, in contrast to RM12.3 bil in the preceding month, attributed to the abatement of investors’ panic in the preceding two months led by asset-management firms, RAM Ratings said.
The rating agency said the raft of global and domestic liquidity-boosting measures in April appeared to have assuaged investors’ fears while stabilising market sentiment.
“That said, April still represents the third consecutive month of outflows, as foreign investors’ appetite for emerging market assets remains constrained by the heightened global uncertainties amid the Covid-19 pandemic,” it said in a statement today.
RAM said foreign investors’ less downbeat sentiment has also alleviated the upward pressure on yields and along with the pricing in of a potential 50 basis points (bps) cut in the overnight policy rate (OPR) in early May had led to a broad-based decline in the yields of government and corporate bonds in April.
“The lowering of the statutory reserve requirement (SRR) while allowing principal dealers to recognise up to RM1 bil of Malaysia Government Securities (MGS) and the Malaysian Government Investment Issue (MGII) as part of their SRR compliance may also have supported domestic demand for fixed-income securities, in turn lowering yields,” it said.
It said the yield of the benchmark 10-year MGS plunged 51.3 bps to 2.9% as at end-April, reversing the 56.9 bps surge of a month earlier.
Looking ahead, it said bond yields are expected to continue to face downside pressure as recent measures broadening the usage of MGS/GII to meet SRR requirements should support demand for government bonds.
“Expectations of further OPR cuts in the second half this year should also keep domestic bond yields in check,” it added. – May 21, 2020, Bernama
