Market Summary
Yield Movements

Between 1 March and 15 May, local currency (LCY) government bond yields in Malaysia fell for most tenors, specifically those securities with tenors of between 2 years and 20 years. The decline in yields reflected restored confidence in the domestic bond market as foreign funds returned due to government policy initiatives to develop the local bond market, coupled with the recovery of the Malaysia ringgit and improved prospects for the economy.

Size and Composition

Total LCY bonds outstanding in Malaysia expanded 3.3% quarter-on-quarter and 5.7% year-on-year, reaching MYR1,206 billion (USD272 billion) at the end of March. Despite the foreign outflow pressure and risks stemming from the global front, growth remained positive in the LCY bond market, reflecting that the market has large support from local investors. The Islamic capital market maintained its dominant position from the high issuance of sukuk (Islamic bonds) at end of March with a share of 57.1% of total LCY bonds outstanding.

Policy, Institutional and Regulatory Developments

Bank Negara Malaysia eased rules on the short-selling of Malaysian Government Securities (MGS) effective 2 May. The move is part of the liberalization measures by the central bank to develop domestic financial markets and restore investor interest in government debt. Prior to this development, only licensed banks and investment banks were allowed to short-sell MGS. The new rule allows companies and insurers to short-sell MGS to help them manage their risk and generate more trading volume, resulting in higher liquidity onshore. The central bank also said this will attract foreign investors to bring funds back to the domestic market.