Non-resident holdings in M’sian bond market fall

PETALING JAYA: Bank Negara Malaysia’s (BNM) measures to crack down on trading in the non-deliverable forward (NDF) market have led to the decline in non-resident (NR) holdings in the local bond market.

NR holdings have fallen to 28.7% as at end-February versus a peak of 34.7% in 2016. This was also due to the recent US presidential elections, said the Financial Markets Committee (FMC), which held a roundtable with market players on the domestic bond market developments on March 10.

“Participants of the roundtable noted that the sell-down was largely in shorter term papers, which is mainly attributed to unwinding of NDF positions by NR financial institution investors.

“NR holdings of less than three years maturity reduced by RM15.2 billion from November 2016 to-date, comprising 70% of the reduction in NR holdings of government bonds,” it noted.

Of these short-term papers, the bulk of the reduction in NR holdings was in less than one-year maturities, according to Bank Negara.

While this type of short-term flows has been destabilising, particularly when it reacts to global and regional developments, FMC said, the participants are of the view that the market is able to withstand and absorb the changes in the short-term NR holdings.

“This was evidenced by well supported government securities auctions which recorded strong average bid-to-cover ratio of 2.5 times in 2017, which was above the two-year average of 2.3 times. Secondary bond market yields have also recovered about 43% from their peak in November 2016,” it added.

Overall, the Malaysian bond market continues to grow with the current outstanding value of RM1.2 trillion or 90% of gross domestic productg, with an expected net bond issuance of RM80 billion in 2017.