KUALA LUMPUR, April 22 — The Malaysian bond market last month registered its first foreign net outflow since November 2021, with the overall net outflow in March at RM4.0 billion compared with a net inflow of RM3.1 billion in February.

The outflow was led by Malaysian Government Securities (MGS) and Government Investment Issue (GII) of RM4.1 billion.

RAM Rating Services Bhd, however, said the cumulative foreign fund flow year-to-date remained positive at RM2.6 billion.

"The sharp outflow came amid a broad selloff in global bond markets last month, triggered by more aggressive monetary policy tightening signalled by the US Federal Reserve (Fed),” it said in a statement.

The firm further said that the Fed now foresees six more 25 basis points (bps) hikes through the rest of the year, a sharp acceleration from its previous expectation of just two additional rate hikes. (There are also indications) that balance sheet reduction could commence in May, which could be the equivalent of another rate hike for 2022.

"As a result, bond yields trended sharply upwards, with 10-year US Treasuries (UST) and MGS yields jumping 49.0 bps and 19.6 bps month-on-month to 2.32 per cent and 3.84 per cent as of end-March.

"The pressure persisted into April, with these yields climbing further to 2.83 per cent and 4.02 per cent as of April 14,” the ratings agency said.

Consequently, this reduced the UST-MGS yield spreads to an average of 135 bps in the first half of April, down from 159 bps and 171 bps in March and February respectively.

"With Bank Negara keeping pat on the Overnight Policy Rate, narrowing yield differentials may dampen foreign appetite for MGS in the near term,” it concluded. — Bernama