(Bloomberg) — November was a testy month in Malaysian politics but you wouldn’t know it by looking at bond inflows.
Overseas holdings of government securities rose to 198.4 billion ringgit ($49 billion) last month, the highest since October 2016, according to central bank data. The increase marked the seventh straight month of purchases and the binge occurred as the ringgit rallied 2% to its strongest level in almost a year.
Malaysia’s political drama reached fever pitch in November as some lawmakers mounted an attack to oust Prime Minister Muhyiddin Yassin and infighting threatened to split the ruling coalition. But the search for yield and signs of recovery in the local economy canceled out the noise.
“Ringgit bonds’ fundamentals are attractive considering the large onshore investor base, a well-managed pandemic situation which has in turn limited the extent of fiscal slippage in 2020, and the ample policy room the central bank still has at its disposal,” said Jennifer Kusuma, a senior rates strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Furthermore, the yield differential versus U.S. Treasuries has widened this year.”
Malaysia’s 10-year benchmark yield was at 2.76%, offering a 183-basis point premium over comparable U.S.Treasuries. The gap has widened from around 140 basis points at the start of the year.
Inflows are likely to persist if the optimism about the global vaccine rollout and a recovery in regional trade continue to support risk appetite. Even Fitch Ratings’ downgrade of Malaysia’s sovereign rating hasn’t dented the sentiment so far.
Still, if the political wrangling resurfaces, global funds may start to shift to other Asian markets. “This is an area investors will monitor closely,” ANZ’s Kusuma said.
©2020 Bloomberg L.P.
