Malaysian bonds a haven for foreigners

SINGAPORE: Foreigners sought shelter in Malaysian bonds last month, buoyed by an improving growth outlook and low prospects of further policy rate hikes by the country’s central bank, with overseas money pouring out of regional peers.

In February, foreigners purchased about US$950mil (RM4.2bil) worth of Malaysian bonds, the most since August, but sold a combined US$2.1bil (RM9.5bil) worth of Indonesian, South Korean and Thai bonds, data from regulatory authorities and bond market associations showed.

Appetite for Malaysian bonds increased last month, after data showed robust economic performance in the final quarter of last year and inflation easing further in January.

Bank Negara left its benchmark interest rate unchanged for the second consecutive meeting earlier this month on expectations of a slowdown in global economic growth and amid uncertainty about the path the US Federal Reserve (Fed) will take at its meeting next week.

Malayan Banking Bhd’s head of fixed-income research, Winson Phoon, said Malaysian inflows likely concentrated in the front and mid tenors due to attractive dollar-hedged ringgit yields versus US Treasuries, as well as better clarity over peak interest rates from Malaysia’ central bank.

Investors had been worried that the Fed might go back to its aggressive tightening path amid a resilient US economy, but the banking crisis that has unfolded over the last week in the wake of the collapse of Silicon Valley Bank has changed the outlook for interest rates.

Investors are now wary of the risks of outflows in the near term in Asian bonds.

“What’s happening in the United States with so much volatility is having a lot of residual effects on markets everywhere,” said Galvin Chia, emerging markets strategist at NatWest Markets. “It will take months probably to reveal the true extent of these shocks in the US system,” — Reuters