KUALA LUMPUR (May 20): Foreign investors returned to Malaysian bonds in April, bringing in RM10.2 billion in net inflows to the bond markets for the second consecutive month, reflecting a swift easing of market uncertainty after the announcement of reciprocal tariffs, according to RAM Ratings.
The foreign inflow was driven primarily by Malaysian Government Securities (MGS) and Government Investment Issues (GII), which saw RM9.7 billion in net inflows in April, up from RM3 billion in March.
Meanwhile, Malaysian Treasury Bills (MTB) and Malaysia Islamic Treasury Bills (MITB) recorded RM480 million in inflows, reversing a RM252 million outflow in the previous month, the rating agency said in a statement on Tuesday.
"Swift easing of market uncertainty supported strong rebound in foreign inflows into Malaysian bonds in April," RAM Ratings said.
This is seen as the VIX fear index, a volatility measure published by the Chicago Board Options Exchange, came off its post-pandemic high in the first week of April, following easing US-China trade tensions that initially spiked following the announcement of reciprocal tariff on April 2.
In the month, the local currency dropped to as low as 4.50 against the US dollar on April 9, although it then appreciated to 4.32 by end-April, while the US Treasury (UST) yield retreated to 4.17%, as both US and China backtracked on their tariff measures that would otherwise weigh on global trade. The ringgit last traded at 4.29 against the greenback at the time of writing.
In the US, while its benchmark interest rate has been kept unchanged at 4.25-5% in May, market expectations for rate cut has "shifted to September, with the probability of rate cut remaining at around 71% for the interim", RAM said.
Commenting on Moody's downgrading of the US sovereign credit rating by one notch from its top rating — the last to do so among the big rating agencies — RAM said the subsequent selloff pressure on UST "was relatively contained" as Malaysian government bond yields "largely trended sideways".
The 10-year US Treasury yield rose to 4.46% as of May 19 (from 4.17% at end-April), while the benchmark 10-year MGS yield stood at 3.64% as of May 19, compared to 3.68% at end-April.