PETALING JAYA: After three consecutive months of positive net foreign flow, the Malaysian bond market’s foreign flow slipped into negative territory in November 2021.
According to Malaysian Rating Corp Bhd (MARC), the local bond market suffered from sell-offs, with a net foreign outflow of RM3.5 billion compared with an inflow of RM2.9 billion in October, as investors reacted to the hawkish stance and the prospect of policy tightening by the US Federal Reserve (Fed).
“The share of foreign holdings diluted in November to 14.4% from 14.7% in October of the total outstanding as the foreign holding magnitude declined to RM250.4 billion from RM254 billion in October. Foreign outflows were dragged by the enormous outflow of Malaysian Government Securities (MGS) of RM4.8 billion in November from RM2.7 billion in October. The high redemption value in November also contributed to the net foreign outflows. As a result of the net foreign outflow, the ringgit depreciated to RM4.2265 against the US dollar in November from RM4.14 in October,“ MARC said in a statement.
The emergence of the Covid-19 Omicron variant at the end of November flattened yield curves across global markets.
The Fed hinted that it would accelerate the pace of tapering of asset purchasing as high inflation gripped the US economy. The Fed also retired from describing the inflation as transitory as it has proven to be more persistent and higher than expectations. In the European Union, however, the European Central Bank stood by its view that inflation there is transitory. Meanwhile, the Bank of England tilted towards a dovish stance due to uncertainties over the impact of the Omicron variant on the British economy.
“Lesser issuances and higher redemptions caused the local government bond market to slow down with total outstanding MGS/Government Investment Issues (GII) amounting to RM895.3 billion as of end-Nov 2021. In Nov, gross issuances declined by RM1.1 billion to RM15.9 billion from RM17 billion in October mainly due to lower issuances in the GII segment totalling RM4.5 billion in November and RM8 billion in October.
“On the other hand, new issuances in the MGS segment were elevated to RM11.4 billion from RM9 billion in October, driven by switch auctions, but was outpaced by a relatively high volume of maturities at RM13.9 billion,“ MARC said.
The advent of the Omicron variant led to renewed haven demand for local government securities at the end of November.
Investors were inclined towards bonds with longer maturities, driving the 15-year and 30-year MGS yields to drop by 17bps and 14bps month-on-month. The hefty gains showed that investors shrugged off the uptick in the country’s Oct inflation rate to 2.9% from 2.3% in Sept.
In the meantime, yields in the short-tenure space remained anchored as Bank Negara Malaysia (BNM) signalled no imminent changes in the key policy rate at its November Monetary Policy Committee (MPC) meeting, MARC said.
BNM has maintained the overnight policy rate at a historical low of 1.75% since May 2020. In an accompanying statement, MARC noted, BNM reiterated that the current monetary policy stance is accommodative and that its future monetary policy stance will be data-dependent. It is also worth noting that BNM’s assessment of the economic outlook was essentially unchanged from the previous MPC statement.