Market Summary
Yield Movements

Local currency (LCY) government bond yields rose for all tenors between 31 October and 18 November. Yields for tenors of less than 1 year rose 42 basis points (bps) on average. Yields have been on the rise since September due to volatile oil prices and, particularly, after the October release of the minutes of the United States (US) Federal Reserve meeting, which strengthened the case for the likelihood of a federal funds rate hike in December. Yields soared in November as the market reacted to the unexpected outcome of the US presidential election, reflecting uncertainty over the economic policies of the next administration.

Size and Composition

The Malaysian LCY bond market barely changed in size in the third quarter (Q3) of 2016, increasing only 0.4% quarter-on-quarter (q-o-q) to reach MYR1,168 billion (USD282 billion) at the end of September. A decline in the government bond sector was compensated for by growth in the corporate bond market. Total government bonds outstanding summed to MYR632 billion, while corporate bonds amounted to MYR537 billion. Sukuk (Islamic bonds) continued to account for most of Malaysia’s LCY bond market with a share of 56.3% at the end of September.

Policy, Institutional, and Regulatory Developments

On 21 October, the Prime Minister announced the release of Malaysia’s 2017 federal budget with a total allocation of MYR260.8 billion or a 3.4% increase from the 2016 revised budget. The government also announced a fiscal deficit target of MYR40.3 billion, or 3.0% of gross domestic product, down from the 2016 target of 3.1%. Federal government revenue collection is expected to increase 3.0% year-on-year (y-o-y) to MYR219.7 billion in 2017.