Overseas investors bought US$1.1 billion (RM4.63 billion) of the country’s bonds in January, the most in nine months, while local demand got a boost from institutional investors seeking assurance that only government securities provide.
The relentless buying kept the nation’s debt insulated from the selloff in United States Treasuries, with the correlation between the 10-year benchmarks dropping close to zero, signalling no interdependence.
“Foreigners will continue to load up on Malaysian bonds in the first half of 2022, as ringgit yields have been resilient against rising global rates,” said Duncan Tan, a Singapore-based foreign exchange and interest-rate strategist at DBS Group Holdings.
He added that a range-bound dollar will also keep the higher Malaysian yields attractive.
Despite the US$4.1 billion foreign bond inflows since 2021, global fund positioning isn’t overweight yet, with 12-month inflows only slightly higher than the five-year average.
Demand from local pension funds is also expected to rise as contributions to the nation’s Employees’ Provident Fund (EPF) pick up as the effect of the Covid pandemic wanes, according to Michelle Chia, regional head of Treasury & Markets research at CIMB Investment Bank in Kuala Lumpur.
Foreign bond inflows in January are the largest in nine months
Pension fund holdings of government debt had risen for three straight quarters to RM244 billion in the three months to September, according to the latest available data from Bank Negara Malaysia.
“Global market volatility will continue to drive institutional demand for government haven assets,” Chia said.
Another factor supporting Malaysian bonds has been the relatively resilient ringgit, as the oil-exporting nation has been buoyed by Brent crude prices that have risen above US$100 per barrel.
Despite the 37 basis-point surge in the 10-year US yield this year, the Malaysian equivalent has risen by less than 10 basis points to 3.68%, with the ringgit only weakening by 0.9% against the dollar over the period.
Ringgit bonds are a haven from the conflict in Ukraine as Malaysia is the only economy with a positive oil trade balance, according to a note on Thursday from DBS Group Holdings.
It recommends being overweight the securities as they have a low yield sensitivity to US rates, and sizable foreign central bank ownership.