Market Summary
Yield Movements

Between 1 June and 15 August, bond yields for local currency (LCY) government bonds in Malaysia increased for all tenors except for 1-month and 3-month maturities, whose yields fell, and for 6-month maturity, whose yield was practically unchanged. Yield movements in Malaysia’s LCY government bond market were range-bound, with increases mainly reflective of the cautious stance of investors ahead of the United States (US) Federal Reserve’s balance sheet reduction program and further interest rate hikes.

Size and Composition

Total LCY bonds outstanding in Malaysia reached MYR1,246 billion (USD290 billion) at the end of June, an expansion of 3.3% quarter-on-quarter (q-o-q) and 7.1% year-on-year. The size of the government bond market grew 2.9% q-o-q to MYR670 billion and the corporate bond market grew 3.8% q-o-q to MYR425 billion. Sukuk (Islamic bonds) continued to have a larger share in comparison with conventional bonds, amounting to MYR716.3 billion, or 57.5% of the total.

Policy, Institutional and Regulatory Developments

Bank Negara Malaysia will no longer require Islamic banks to maintain reserve funds effective 3 May. In the past, Islamic banking institutions were required to set aside a percentage of profits into a reserve fund prior to dividend distribution to serve as a buffer to be drawn upon during periods of stress.