Malaysia Bond Market - Weekly Commentary

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The week started with strong paying interest as players took cue from the rally in US Treasuries resulting from the bearish employment data released on Friday. However, the market was not able to sustain the momentum as profit taking crept in during the middle of the week.

MYR ended at a new 10-year high against the US dollar on Thursday following the surprise move by the Monetary Authority of Singapore to tighten its foreign exchange policy to contain inflation. The stronger MYR has sparked a buying frenzy from the offshore parties, especially in the short-term bills and securities for the currency momentum play.

Out in the news, the Industrial Production growth unexpectedly moderated in February, gaining 6.3%yoy versus consensus estimates (+8.2%) and revised January growth figures (+7.6%). The weakening in IP growth came in contrast to February exports growth, which has continued to outperform expectations (+14.5%) in February.

Government Securities

Despite the huge move in USD/MYR last week, the MGS market continued to be thinly traded in selected buying. Total average daily volume declined to RM441million as trading focus shifted to the short-term bills market. The Central Bank announced the reopening of the current 3-year benchmark MN09/11 amounting to RM3.5 billion which will be issued on Tuesday. The When Issued was lightly traded between 3.440% - 3.415%.

Week-on-week saw the benchmarks closed lower in yield terms on the back of the buying interest from the offshore players. The 3-year MN09/11 closed 1bp lower to 3.42% whilst the 5-year MJ07/13 dropped 2 bps to 3.47%. The 10-year MS02/18 and 20-year MX05/27 were the biggest gainer of the week, closing 4 and 5 notches lower to 3.75% and 4.24% respectively.

In terms of sovereign spreads, the 3/5s narrowed by 1bp to 5bps whilst the 5/10s fell 2bps to 28bps. Some last minute buying on the 20 year saw the 10/20s spread gapped lower by 1bp to 49bps.

The Week Ahead

The market will continue to be aligned with the movement in spot MYR. With the re-opening of the 3-year MN09/11, trading volume in the MGS shall improve this week. Sentiment will also be influenced by the market expectation on March’s CPI, scheduled to be released next Wednesday.

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