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PETALING JAYA: Foreign holdings of ringgit bonds may scale new highs in the medium to longer term, supported by resilient fundamentals and relatively high-yields among current account-positive emerging markets Asian peers.
Maybank Investment Bank Research (Maybank IB) maintained its recommendation for Malaysian Government Securities (MGS) at “neutral” as a 25-basis-point rate cut had mostly been priced in, but would look to add on yield uptick.
Its three-year and 10-year MGS forecasts remain unchanged at 3.15% and 3.55%, respectively, for the end of this year.
It said foreign inflows were surprisingly strong in April and May, totalling RM23.6bil.
That brought total foreign holdings to a record high RM302.1bil.
The total return of ringgit government bonds reached 3.6% year-to-date as of June 20, the research house said.
If the yield curve holds, full-year total return of ringgit government bonds including coupon accruals will rise to about 5.5%, exceeding its earlier forecast of 3% to 5% for this year.
It revised its total return forecast upwards to between 4% and 6% on the expectation of a 25-basis-point cut in the overnight policy rate in the third quarter (3Q25).
Maybank IB said overall, it is mildly positive on foreign demand for the second half of this year.
A goldilocks scenario with a modest slowdown in global growth and moderate central bank easing would be most supportive to foreign inflows, the research house added.
In the medium to longer term, the theme of diversification away from US dollar assets may gain additional traction gradually.
As of 1Q25, foreign investors held RM76bil in MGS and Government Investment Issue (GII), accounting for about 29% of total foreign holdings and about 6% of total MGS and GII.
The research house maintained that Bank Negara will cut the OPR by 25 basis points to 2.75% by the end of this year, either at the policy meeting on July 9 or Sept 4.
It also maintained its forecast of three-month Kuala Lumpur Interbank Offered Rate of 3.25% at the end of this year, based on expectation of OPR cut in the 3Q25 and continued dovish market expectations regarding Bank Negara policies.
Across emerging markets in Asia, local bonds delivered strong performance on the back of monetary policy easing.
This was led by India and Singapore with a total return of 5.3% year-to-date as of June 20, followed by Thailand at 4.8%, Indonesia 4.7%, Malaysia 3.7%, Philippines 2.6% and South Korea 2.1%, while China lagged with a modest 0.7% after posting near double-digit return last year.
All central banks for emerging markets in Asia have eased policy to varying degrees this year, except Malaysia, the research house said.
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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