Market Summary

Yield Movements

Malaysia's local currency (LCY) government bond yield curve shifted downward across all tenors between 1 March and 8 May. The cut in interest rate by the Bank Negara Malaysia drove the yields downward. The dovish sentiment of Bank Negara Malaysia had already been priced in as investors reacted to the central bank's statement in March.

Size and Composition

Malaysia's LCY bond market expanded 2.9% quarter-on-quarter (q-o-q) and 7.6% y-o-y, reaching a size of MYR1,441 billion (USD353 billion) at the end of the first quarter (Q1) of 2019. The government and corporate segments both supported the expansion of the bond market, with shares of 53.1% and 46.9%, respectively. The amount of LCY government bonds outstanding climbed to MYR766 billon at the end of Q1 2019 on growth of 3.6% q-o-q, mainly driven by the expansion of central government bonds. LCY bonds outstanding in the corporate sector grew faster in Q1 2019 at 2.0% q-o-q versus 1.3% q-o-q in the fourth quarter of 2018. The corporate bond stock amounted to MYR675 billion.

Policy, Institutional and Regulatory Developments

In March, Bank Negara Malaysia liberalized its foreign exchange administration framework to allow investors to hedge their foreign exchange risks more effectively. Residents are now allowed to hedge their foreign exchange obligations for up to 12 months. To help small and medium-sized enterprises hedge their foreign currency risk, net importers are allowed to receive foreign currency payments for their domestic goods and services from resident exporters.