KUALA LUMPUR: Foreign investors remained net buyers of Malaysian bonds for the fifth successive month in May 2023, charting a net inflow of RM3.0 billion from the RM1.5 billion registered in April this year, on expectations of the US Federal Reserve (US Fed) ending its rate hike cycle, according to RAM Ratings.

It said the take-up was primarily for Malaysian Government Securities (MGS) and Government Investment Issues (GII) after a lacklustre April.

“Foreign buying of MGS/GII in the first quarter of 2023 consisted largely of ‘non-sticky’ investors, while ‘sticky’ investors largely sold down.

“While the US Fed decided to leave the interest rate unchanged at June’s Federal Open Market Committee meeting, the latest ‘dot-plot’ projections suggest that committee members anticipate another two 25 basis points (bps) hikes this year,” it said in a statement today.

The rating agency said further rate hikes would continue to compress yield differentials between US Treasuries (UST) and MGS if Bank Negara Malaysia maintains the overnight policy rate at 3.00 per cent.

“With the average 10-year MGS-UST yield spread sitting at a marginal 2.1 bps in the first half June (May: 17.7 bps; April: 39.6 bps), the narrow differential will likely dampen the appeal of Malaysian bonds in the near term,” it said. – Bernama