Market Summary

Yield Movements

Movements in local currency (LCY) government bond yields in Malaysia were mixed between 28 February and 15 May. Yields of shorter-term tenors (from 1 month to 7 years) decreased an average of 34 basis points (bps), driven by Bank Negara Malaysia's overnight policy rate cuts to enhance liquidity amid the economic fallout from the coronavirus disease (COVID-19). On the other hand, yields of longer-term tenors (from 8 years to 30 years) increased an average of 11 bps, reflecting investors' flight to safety amid an uncertain economic outlook. The yield spread between 2-year and 10-year government bonds expanded from 22 bps to 67 bps during the review period.

Size and Composition

The LCY bond market of Malaysia expanded 2.9% quarter-on-quarter (q-o-q) in the first quarter 2020, reaching a size of MYR1,527.8 billion (USD353.7 billion), supported by expansions in LCY government and corporate bonds. The LCY government bond market grew 3.9% q-o-q as outstanding central government bonds and central bank bills increased. Meanwhile, LCY corporate bonds outstanding jumped 1.7% q-o-q. Total outstanding Islamic bonds at the end of the review period grew 3.1% q-o-q.

Policy, Institutional and Regulatory Developments

On 19 March, Bank Negara Malaysia decreased the statutory reserve requirement ratio from 3.0% to 2.0% in order to enhance the liquidity of Malaysia's banking system amid the COVID-19 pandemic. The move allowed principal dealers to include Malaysian Government Securities and Government Investment Issues in the computation of their reserves. On 5 May, the regulation was expanded to include all banking institutions.