Foreign bond investors turned net buyers in September

KUCHING: The latest data in RAM’s Bond Market Monthly indicated that foreign investors’ confidence seemed to have returned in September amid the current landscape of modest volatility and low yields.

The ratings agency in a statement yesterday said foreign holdings of Malaysian bonds hit RM200.1 billion at month- end – the highest level seen in seven months.

Supported by the strengthening of the ringgit against the US dollar and robust economic fundamentals, September posted RM9.3 billion of net foreign inflows.

“Malaysian Government Securities (MGS) and Government Investment Issues (GII) accounted for the lion’s share (RM7.9 billion) of this net inflow,” RAM said in the statement.

“The rapid flight to safety in August appears to have cooled as the perceived risks vis-a-vis geopolitical tensions subsided in September.

“UST yields trended upwards, especially towards the end of the month, fuelled by renewed expectations of the US Federal Reserve’s tightening, coupled with the unveiling of US President Donald Trump’s tax reform plans.”

Amid renewed expectations of another Fed rate hike, RAM saw that corporate bond issuance climbed up to RM18.1 billion in September as issuers took the opportunity to lock in better rates ahead of the rate tightening.

“At its meeting in September, the Fed was still determined to tighten its monetary policy as planned, maintaining its guidance of three rate hikes this year.

“Year to date issuance, which summed up to RM84.4 billion as at end-September, had already reached almost 90 per cent of the lower end of our projected RM95 billion to RM105 billion for 2017.

“On the government side, YTD long-term government issuance came up to RM85.5 billion as at end-September, in line with our full-year projection of RM100 billion to RM110 billion.”

The Fed also announced the commencement of its balance-sheet trimming in October, by gradually reducing the reinvestment of principal payments from matured securities. Moving forward, we may see some strengthening of the greenback, although this may be moderated by uncertainties over the continuity of the North American Free Trade Agreement (NAFTA) and the passing of President Trump’s business-friendly tax reform bill.