Malaysian Government Securities (MGS) and

• Yield Movement: MGS and GII yields moved unevenly this week, ranging between -2.1 and 5.8 basis points (bps). The 10-year MGS dipped by 1.1 bps to 3.814%, while the 10-year GII declined more modestly by 0.2 bps to 3.837%.
• Key drivers: The decline in the 10-year MGS yield was supported by strong domestic fundamentals, notably better- than-expected external trade data and stable inflation. This, alongside BNM's decision to hold the OPR at 3.00%, further boosted Malaysia's appeal, attracting RM1.1b in foreign inflows into the local debt market. These factors helped offset concerns stemming from Trump's tariff threats and stronger- than-expected US industrial production.
• Flows and yields outlook: Domestic bond yields may rise slightly next week as market brace for the Fed rate decision with policymakers expected to hold rate steady. Trump's evolving tariff policy could add volatility, potentially pushing domestic yields higher. Investors will also focus on the 4Q24 GDP release for insights into global economic momentum.

United States Treasuries (UST)

• Yield Movement: UST yields rose modestly this week, climbing between 1.0 bps to 5.9 bps. The 10-year UST rose by 3.1 bps to 4.644%, while the 2-year UST posted a sharper gain of 5.9 bps to 4.289%.
• Key drivers: The rise in the 10-year UST yield was fuelled by Trump's tariff threats against China, Mexico and Canada, alongside concerns over US debt sustainability. Earlier in the week, Treasuries received some support as Trump refrained from announcing tariffs on his first day in office, easing immediate market pressure.
• Outlook: UST yields are expected to continue their upward trend next week as investors evaluate the Fed's policy rate stance and monitor guidance from Fed officials. Key data releases, including 4Q24 advance GDP and core PCE inflation, will offer further clues on the timing of potential rate cuts. Trump's tariff announcements will remain a key source of market volatility. Bond Market Weekly Outlook Local yields to edge higher ahead of Fed decision

Auction Result

• The 3-yr MGII 07/28 reopened at a higher-than-expected total issuance of RM5.5b, with an average yield of 3.561%.
• Demand was solid, with a bid-to-cover (BTC) ratio of 2.62x.
• The next auction will be the reopening of 30-yr MGS 03/53 at an expected issuance of RM4.0b including private placement.

Source: Kenanga Research - 24 Jan 2025