Market Summary

Yield Movements

Malaysia’s local currency (LCY) government bond yield curve shifted upward for all tenors between 1 March and 15 May. Large increases were seen in tenors from 1 year to 5 years, with an average gain of 26 basis points. The upward trend in Malaysia’s local government bond yields during the review period was driven by a number of factors which includes: (1) rising global yields especially for United States Treasuries; (2) Bank Negara Malaysia’s interest rate hike in January which raised the overnight policy rate by 25 basis points to 3.25%; (3) and the unexpected outcome of the Malaysian general election which made investors cautious in setting their position on local bonds as they wait for more clarity from the new government on its policies.

Size and Composition

Malaysia’s LCY bond market continued to expand in the first quarter of 2018 on growth of 4.1% quarter-on-quarter (q-o-q), faster compared with the preceding quarter and the first quarter of 2017. Total LCY outstanding bonds amounted to MYR1,339 billion (USD347 billion) at the end of March, comprising of 53% government bonds and 47% corporate bonds. Both segments propelled the growth of the LCY bond market: outstanding government bonds posted a growth of 4.7% q-o-q and corporate bonds grew 3.5% q-o-q. Sukuk (Islamic bonds) continued to dominate Malaysia’s LCY bond market with a share of 59.4%.

Policy, Institutional and Regulatory Developments

Bursa Malaysia implemented the intraday short-selling (IDSS) framework on 16 April to boost liquidity in the local stock exchange. The measure is part of Bursa Malaysia’s efforts to build a dynamic and vibrant capital market that will further improve flexibility for investors to refine their trading and risk management strategies. The list of approved stocks for IDSS comprises 280 securities and the list will be reviewed every 6 months. Compliance requirements and safeguards will also be put into place that include market controls for IDSS suspensions if a stock price falls more than 15% from the previous day’s closing price or if the gross short-selling volume exceeds the daily maximum limit of 3% of outstanding shares per security.