Malaysian bonds sold to foreigners at fastest pace in more than a year
PETALING JAYA: Foreign investors are buying Malaysian bonds at the fastest pace in more than a year, bolstering the ringgit, as their holdings of Government papers surged to all-time highs.
Nomura Research said in a report that Malaysia’s debt markets experienced inflows of RM11.5bil (vs RM1.4bil of outflows in February).
This is the largest monthly inflow since May 2014.
Meanwhile, overseas fund managers increased their holdings of government bonds by RM10bil last month – the largest monthly rise since April 2015.
These inflows fuelled the ringgit’s recent surge to a seven-month high, as it settled at 3.9158 against the US dollar yesterday.
Nomura expected that strong bond flows in March could further strengthen its view that of inflows resumption into the country.
“Combined with the strong trade data recently, it appears that conditions for MYR outperformance are improving. More broadly, the supportive risk environment, with strong US data, dovish language from the Fed and stabilising China economic data may continue to support emerging market inflows,” it said.
Nomura said that potential headwinds for ringgit were fading given the decreasing concerns on the 1MDB front.
“We maintain our long-held view of ringgit outperformance (since November), and continue to have a high conviction in our short Singapore dollar/ringgit position,” it said.
Nomura noted that foreign ownership as a percentage of outstanding also rose to 48.7% for MGS which is the highest since taper tantrum and 6.9% for GII, which is the highest level in the past ten years.
“Malaysian Government Securities (MGS) received RM6.6bil of inflows (vs RM0.6bil in February), while Government Investment Issue (GII) received RM3.4bil (vs RM0.2bil in February),” Nomura said.
“The inflows pushed foreign holdings of MGS to RM171.5bil and GII to RM15.2bil – both are historical highs,” it added.
Nomura said that over the first three months of 2016, foreign investors increased their holdings of government bonds by RM12.9bil with a monthly average of RM4.3bil, which equates to about 70% of year-to-date net supply.
The research house believes that value buying will keep a cap on bond yields as it thinks the carry-friendly, post-dovish Fed environment will continue “for some time”.
“We also expect banking system liquidity conditions to remain supportive of rates markets. On recommendations, we have recently taken profit on our ringgit three year receivers,” it said.
“We believe some uptick in yields is likely in non-deliverable interest rate swaps (NDIRS) after the decent rally seen since December.
“However, we remain open to adding receivers back in our portfolio should there be a 10-15bp uptick in NDIRS,” it added.