KUALA LUMPUR, Aug 22 — The prospect of a low global interest rate environment and consequent search for yields is expected to continue placing downward pressure on domestic bond yields, says RAM Ratings Services Bhd.
In a statement, the ratings services company said increased demand for higher-yielding bonds had led to a lower net inflow of RM5.7 billion into the Malaysian bond market in July 2019 from RM6.6 billion in June 2019.
“We do not envisage this downward pressure to subside in August as investors remain on the lookout for more rate cuts by the Federal Reserve next month.
“While the prospect of a global growth slowdown and the fear of a looming recession signalled by an inverted US treasury yield curve have the potential to dampen investor appetite for emerging market assets, the impact on Malaysia so far has been largely confined to the domestic equity market,” it said.
It said the FTSE Bursa Malaysia Composite Index has been on a downward trend since the start of July, while demand for fixed income instruments led to a bond price rally during the month.
Government bond issuance activity stayed robust in July, with total Malaysia Government Securities and Government Investment Issue issuance at RM10.5 billion compared with RM8.0 billion in June.
RAM head of research Kristina Fong said prevailing uncertainties and growing concerns over global growth momentum pave a path for further loosening of global liquidity conditions going forward.
“The hunt for yield in emerging market assets will continue so long as an attractive yield differential is maintained, thus providing a counter to potential rationalisation of passive investor flows in the market,” she added. — Bernama
Source: The Malay Mail Online