Foreign Investors Turn Net Buyers With RM2.5 Billion Inflow Despite Yield Potentially Rising

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Local government bond yields are expected to edge higher in the near term as stronger domestic economic growth, elevated crude oil prices and expectations of a potential Bank Negara Malaysia (BNM) interest rate hike continue to weigh on bond market sentiment, according to Kenanga Research.

The research house said Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields mostly increased during the week, with movements ranging from a decline of 0.8 basis points (bps) to an increase of 9.1 bps across the yield curve.

The benchmark 10-year MGS yield rose 9.1 bps to 3.886%, while the 10-year GII yield increased 4.2 bps to 3.916%.

Kenanga attributed the sell-off primarily to Malaysia’s stronger-than-expected economic performance and persistent inflation concerns linked to higher energy prices.

Malaysia’s advance gross domestic product (GDP) estimate for the third quarter of 2026 showed growth of 5.3% year-on-year, exceeding market expectations and reinforcing speculation that BNM could raise interest rates.

According to Kenanga, the stronger growth reading, combined with elevated oil prices, prompted investors to reassess the outlook for domestic monetary policy.

Kenanga said the sell-off in MGS occurred despite easing US Treasury yields, highlighting the market’s sensitivity to Malaysia-specific developments.

Nevertheless, domestic economic fundamentals remained supportive, with September exports also exceeding market expectations.

Despite upward pressure on yields, Kenanga noted that demand at recent government bond auctions remained healthy.

The 15-year MGS auction recorded a bid-to-cover ratio of 2.28 times, while the 20-year GII auction achieved a ratio of 2.29 times.

These figures indicate that investor demand continued to exceed the amount of bonds offered, helping to moderate the sell-off.

Foreign investors also remained active buyers of Malaysian government securities during the period.

Kenanga reported that foreign investors purchased a net RM2.5 billion worth of government bonds between Oct 12 and Oct 16, providing additional support to market liquidity and demand.

The research house said these positive flows and solid auction results helped contain the rise in yields despite concerns over the outlook for interest rates.

Looking ahead, Kenanga expects MGS yields to drift modestly higher ahead of the upcoming US Federal Open Market Committee (FOMC) meeting.

A key domestic factor will be the scheduled RM5 billion new 10-year MGS auction, which could introduce additional supply pressure into the market.

Despite the potential for further increases in yields, Kenanga believes the upward pressure will be temporary.

The research house maintained its end-2026 forecast of 3.88% for the benchmark 10-year MGS yield, suggesting that yields should remain broadly anchored near current levels over the remainder of the year.

Kenanga concluded that Malaysian government bonds are likely to experience modest near-term weakness ahead of the FOMC meeting and the new 10-year MGS auction, but it does not anticipate a sustained rise in yields beyond its year-end projection.

Source: Foreign Investors Turn Net Buyers With RM2.5 Billion Inflow Despite Yield Potentially Rising (October 24, 2026) businesstoday.com.my. Retrieved from https://www.businesstoday.com.my/2026/10/24/foreign-investors-turn-net-buyers-with-rm2-5-billion-inflow-despite-yield-potentially-rising/

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Foreign Investors Turn Net Buyers With RM2.5 Billion Inflow Despite Yield Potentially Rising

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