RAM Ratings Services Bhd expects Malaysia’s bond market to continue its bearish run over concerns on escalating Covid-19 outbreak in the US and wider fiscal deficit and debt levels over the government’s Penjana stimulus package.

The rating agency said the concerns had pushed up the 10-year Malaysia Government Securities (MGS) yield by 25.5 basis points to a peak of 3.12 per cent on June 9, before swiftly retreating below 3.0 per cent.

This is despite foreign interest returned to the Malaysian bond market in May after three consecutive months of net outflows totalling RM22.4 billion, supported by a more upbeat global sentiment.

Since then, RAM said, the benchmark yield had stayed above the level seen throughout May, with average yield of 2.89 per cent, on account of persistent foreign investor risk aversion.

“This trend suggests that foreign buying of MGS is likely to remain dull for the rest of June,” it said in a statement.

It said over the longer term, all-time low global interest rates amid liquidity-boosting measures by central banks would continue to suppress domestic bond yields.

“At its last Federal Open Market Committee meeting on June 10, the US Federal Reserve indicated that the benchmark short-term interest rate will remain near zero through 2022,” it said.

RAM said similarly, expectations of further Overnight Policy Rate cuts by Bank Negara Malaysia in the second half 2020 would also keep a lid on domestic bond yields.

The firm said the Penjana stimulus package, launched in June, was expected to widen Malaysia’s fiscal deficit to 5.8-6.0 per cent of gross domestic product, from its previous projection of 4.8 per cent.

Given the government’s intention to fund this deficit domestically, RAM revised its MGS/GII issuance upward to RM155 billion-RM165 billion for 2020, from the previous RM135 billion-RM145 billion.