Market Summary

Yield Movements

Between 31 August and 15 October, movements in Malaysia's local currency (LCY) government bond yields were mixed. The shorter end of the yield curve declined while yields of long-term tenors increased. The movements in the yield curve in Malaysia are reflective of the trend in the United States during the review period where the shorter end of the yield curve dropped while the longer end rose. Uncertainty over the upcoming Bank Negara Malaysia's (BNM) monetary policy committee meeting in November may have contributed to investors preferring shorter duration tenors over long-term investments, as assessed by some market participants, and as evidenced by short-term yields falling and long-term yield rising toward the end of the review period.

Size and Composition

Malaysia's LCY bond market expanded 0.3% quarter-on-quarter in the third quarter (Q3) of 2019 to reach a size of MYR1,493.1 billion (USD356.5 billion), up from MYR1,488.1 billion at the end of the second quarter of 2019. The growth corresponds to an 8.3% year-on-year jump from MYR1,378.6 billion at the end of Q3 2018. On an annual basis, the growth in the LCY bond market in Q3 2019 was supported by growth in both LCY government and corporate bonds. Total outstanding sukuk (Islamic bonds) at the end of the review period stood at MYR920.2 billion on growth of 0.3% quarter-on-quarter from MYR917.5 billion at the end of the previous quarter, spurred by increased stocks of corporate sukuk.

Policy, Institutional and Regulatory Developments

On 16 August, BNM issued several new policies on foreign exchange administration to provide more flexibility and efficiency for businesses in managing their foreign exchange risks. Resident investors are allowed to hedge their foreign currency current account obligations up to their underlying tenure. Resident treasury centers may hedge on behalf of their related entities. Nonresident treasury centers may also do so, but they must register first with BNM. Nonresident investors are allowed to hedge on an anticipatory basis through an appointed overseas office for the settlement of their trades in goods and services. Finally, the definition of domestic MYR borrowing has been revised to exclude credit facilities used by corporations for miscellaneous expenses.