Foreign investors turned net sellers of MGS and GII in June, reducing their holdings by RM4.3 bil after a brief respite in May (+RM0.4 bil). However, interest in short-term government securities (MTB & MITB) stayed keen, with net foreign purchases of RM233.1 mil in June extending their inflow streak to five consecutive months. Overall, the total foreign outflow amounted to RM4.1 bil last month.
The foreign outflow was largely induced by fears of more aggressive US monetary policy tightening as well as risk aversion amid rising concerns over a potential global economic slowdown. The flight-to-safety sentiment resulted in a broad rise in bond yields as 1-year and 10-year MGS yields respectively climbed 33.1 bps and 6.5 bps m-o-m as of end-June.
Selling pressure on longer-duration bonds, however, appears to have waned since mid-June as long-term yields started to fall despite a continued uptick in short-term yields. The 10-year MGS yield fell from 4.33% on 15 June to 4.06% on 20 July, tracking the decline in the 10-year UST yield from 3.33% to 3.04% over the same period. The dip in long-term yield stemmed from growing trepidation over a potential US recession, which could entail future rate stays or cuts.
As investors continue to assess the economic outlook, longer-term yields are expected to remain pressured on the downside in the near term. Shorter-term yields will likely continue to trend upwards in response to further monetary policy tightening.
About RAM Rating Services Berhad (RAM Ratings)
Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains.