Malaysia`s bonds are expected to see higher annual cumulative foreign inflows from their levels for the past three years, Malaysian Rating Corp Bhd (MARC) said.

The rating agency said a further reduction in the US` Federal Reserve Funds rate, if takes place in the second half of the year, will provide more room for Bank Negara Malaysia to adjust the overnight policy rate (OPR) downward again, if necessary, in the future.

Such prospects, MARC said, would increase the appeal for local bonds due to their attractive yields and Malaysia`s benign inflation outlook.

"Although our base case scenario calls for the OPR to remain at status quo for the rest of the year, we do not rule out the possibility of another downward adjustment in 2020 if macroeconomic conditions deteriorate," it said in a statement.

This will mitigate some of the outflows that could happen in the second half of the year due to rising concerns over the US-China trade war and FTSE Russell`s possible decision to exclude Malaysian government bonds from its global bond index, it added.

"We expect the 10-year Malaysian Government Securities yield to hover between 3.5 per cent and four per cent in the second half of the year."

The Malaysian bond market recorded net foreign outflows of RM2.2 billion in the January-June 2019 period as compared with outflows of RM20.9 billion in the same period last year.

Combined net foreign outflows from the equity and bond markets also shrank to RM6.9 billion compared with outflows of RM27.7 billion last year.

The US central bank was expected to make two more rate cuts in September and December after making its first 25 basis points reduction in 10 years on Wednesday.

It was the first interest rate cut since September 2007 in a move to resuscitate the country`s economic activities during the sub-prime crisis.

Chairman Powell`s emphasis that the cut only serves to "insure against downside risks" but did not signal the start of an easing monetary policy cycle, has disappointed the market.

https://www.nst.com.my/business/2019/08/509403/malaysias-bonds-likely-see-higher-annual-cumulative-foreign-inflows

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