Malaysian bonds posted their largest foreign outflows in 11 months, weighed down by fading expectations of interest-rate cuts and a wall of maturities.
Global funds pulled US$1.7 billion ($2.2 billion) from the nation’s sovereign and corporate bonds in September, the most since October 2024. They had plowed US$726 million into Malaysian debt in August.
The withdrawals underscore how rate cut bets have faded with the economy seeing low inflation and the central bank predicting resilient domestic demand through 2026.
Swaps are pricing in a steady policy rate over the next six months. That’s weighing on demand at government bond auctions, with this week’s sale drawing the weakest bid-to-cover ratio of the year.
Foreign outflows were driven by the diminishing “likelihood of further interest rate cuts” due to economic growth prospects, said Chandresh Jain, an EM Asia rates and markets strategist at BNP Paribas in Singapore. The redemption of foreign holdings in a MYR27 billion ringgit ($8.28 billion) bond that matured in September also impacted the flows, he said.
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The selloff is visible in stocks too. Malaysian equities saw the highest net selling by global investors on Oct 6 in a month. Jain expects foreign inflows to return to Malaysian bonds in the fourth quarter on further US Federal Reserve rate cuts.
Meanwhile, investors will be watching Malaysia’s 2026 budget announcement Friday for any signs of stimulus and fiscal consolidation.
Chart: Bloomberg
