OPR cut, Covid-19 weigh on Malaysian bond yields

10-year MGS yield declined 17 basis points to 3.15%, lowest since January 2009: RAM

PETALING JAYA: Bank Negara Malaysia’s (BNM) unexpected overnight policy rate (OPR) cut and the Covid-19 outbreak have pushed Malaysian bond yields lower in January, according to RAM Ratings.

The ratings agency said the 10year Malaysian Government Security (MGS) yield declined 17 basis points (bps) to 3.15%, its lowest level since January 2009.

This followed BNM’s pre-emptive 25 bps OPR cut on Jan 22, to mitigate downside risks arising from the volatile external environment and policy uncertainties.

‘While market consensus – including RAM – points to at least one rate cut in 1H 2020, the earlierthan-expected OPR reduction had caught everyone by surprise,” RAM Ratings said in press release.

It highlighted that the immediate aftermath of the cut was a 13 bps drop in the 10-year MGS yield to 3.19%.

On the other hand, the ratings agency stated that the rapid spread of Covid-19 has exacerbated fears of dampened economic growth.

“The pandemic has taken a toll on various industries and disrupted supply chains, thus raising the prospect of even looser monetary policy,” it said.

Furthermore, RAM Rating observed that the epidemic has also triggered “flight to safety” sentiment, with investors flocking towards less risky fixed income assets.

It said these factors had exerted downward pressure on bond yields, leading to a 41 bps plunge in benchmark 10-year US Treasury yields as at end-January.

“Despite this, the Malaysian bond market still posted a net foreign inflow of RM3.6 billion for the month (December 2019: RM8.1 billion),” it said.

On the whole, the ratings agency noted that the issuance of government bonds started off the year at a fairly robust pace, with RM10 billion of MGS and GII coming to the market in January.

However, corporate bond issuance was relatively lacklustre amid a seasonally slow month, amounting to only RM4.1 billion.