KUALA LUMPUR, April 11 — Kenanga Research expects demand for local bonds to recover in the medium-term as Malaysia is likely to chart a sustained economic recovery.

In a research note today, the research firm said it also expects continued foreign fund outflows in April amid the United States (US) Federal Reserve’s (Fed) increasingly hawkish tone, narrowing yield differentials and RM11 billion worth of government investment issue (GII) maturing this month.

"However, the outflow may be smaller than in March,” it added.

Kenanga Research said Malaysian government securities (MGS) and GII yields had increased last week, rising between 1.8 basis points (bps) and 18.6 bps overall, while the 10-year MGS yield initially rose by 11.7 bps to four per cent, its highest level since January 2019, before closing the week at 3.99 per cent (+10.7bps).

"Domestic yields continued to trend higher amid rising global bond yields, especially following hawkish remarks from the Fed and the US Federal Open Market Committee (FOMC) minutes indicating a rapid Fed balance sheet run-off, potentially starting in May,” it said.

It noted that the domestic bond market registered a substantial foreign fund outflow of RM4 billion in March, amid the global bond sell-off and sizeable maturities of MGS and GII.

Moving forward, Kenanga Research said yields may trend rangebound-to-higher this week, likely steered by the performance of US Treasuries and the release of US inflation data for March. — Bernama