KUALA LUMPUR: Malaysia's bond market recorded RM3.5bil in net foreign outflow in November after three successive months of net inflow as investors reacted to the hawkish stance and the prospect of policy tightening by the US Federal Reserve.

       The November outflow compares to a net foreign inflow of RM2.9bil in October.

       In a statement, Malaysian Rating Corp Bhd (MARC) said the share of foreign holdings diluted in November to 14.4% of total outstanding amounting to RM250.4bil, compared to 14.7% or RM254bil in October.

       "Foreign outflows were dragged by the enormous outflow of Malaysian government securities (MGS) of RM4.8bil in November (October: +RM2.7bil).

       "The high redemption value in November also contributed to the net foreign outflows," it added.

       In November, lesser issuances and higher redemptions caused the local government bond market to slow down with total outstanding MGS/government investment issues (GII) amounting to RM895.3bil as of end-November.

       Gross issuances declined RM1.1bil to RM15.9bil from RM17bil in October, mainly due to issuances in the GII segment dropping to RM4.5bil from RM8bil in the previous month.

       New issuances in the Malaysia government securities (MGS) segment rose to RM11.4bil from RM9bil in October due to switch auctions, although this was outpaced by RM13.9bil in maturities.

       MARC noted that there was a renewed demand for local govvies given the advent of the Omicron variant of the Covid-19 virus, with investors drawn to bonds with longer maturities.

       This drove the 15-year and 30-year MGS yields lower by 17bps and 14bps month-on-month respectively.

       "The hefty gains showed that investors shrugged off the uptick in the country’s October inflation rate to 2.9%," said MARC.

       Meanwhile, MARC said yields in the short-tenure space remain anchored as Bank Negara signalled no imminent changes to the key policy rate and kept its economic outlook unchanged during its November monetary policy committee meeting.

       On the global front, MARC said the emergence of the Covid-19 Omicron variant at the end of November flattened yield curves across markets.

       "The Fed hinted that it will accelerate the pace of tapering of asset purchasing as high inflation grappled the US economy.

       "The Fed also retired from describing inflation as transitory as it has been more persistent and higher than expectations," it said.

       It added the European Central bank has stood by its view that the inflation is transitory while the Bank of England tilted to a dovish stance due to uncertainties over the impact of the Omicron variant on the economy.