Yields down on increasing calls for further easing as COVID-19 pandemic weakens economic prospects

Yields on Malaysian Government Securities (MGS) across the curve continued to tighten in February as economic sentiment moderated following the release of the 4Q2019 GDP numbers and the government’s downgrade Malaysia’s GDP growth pace to between 3.2% to 4.2%.  These events gave support for the current low yield levels and raised expectations of further easing in the overnight policy rate (OPR). The risk-off sentiment is further strengthened by the relentless spread of the COVID-19 outside China and the government’s announcement of a stimulus package for 2020.

As of end-February, MGS yields were lower by 17bps to 36bps. With most of the gains recorded between the front-end till the belly of the curve, the yield curve had steepened. At the front-end, the 3y MGS shed 27bps to 2.62% (January: 2.88%); at the back-end, the 20y shed 17bps to 3.24% (January: 3.41%). As a result, the 20y/3y yield spread widened to 63bps (January: 52bps). Meanwhile, the 10y yield fell 31bps to 2.83% (January: 3.13%), the lowest level ever recorded and below its key psychological level of 3.00%.

Corporate bond benchmark yields also drifted lower on continued strong interest, especially in quasi-government, as well as AAA and AA-rated bonds. Benchmark yields for AAA, AA and A-rated fell by between 12bps and 37bps, compared with January’s fall of between 13bps and 32bps, and the AAA, AA, A blended credit spreads widened on average by between 1bp and 10bps along the 3y15y curve.