Why did foreign investors unexpectedly boost Malaysian bonds in November?

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Foreign Investors Unexpectedly Increased Malaysian Bond Holdings in November 2019

Malaysian bonds experienced a significant and unexpected surge in foreign investment during November 2019, with net inflows reaching RM8 billion. This represented the largest monthly inflow since September 2017 and pushed foreign participation in the bond market to its highest level since November 2018, with foreign holdings comprising 13.2% of total outstanding bonds. This trend was contrary to expectations, as global financial conditions, particularly the US Federal Reserve's monetary policy, typically influence such investment decisions.
Impact of US Federal Reserve Policy on Global Capital Flows

The US Federal Reserve's monetary policy meeting on October 30, 2019, played a crucial role in shaping global capital flows. The Fed signaled a pause in its interest rate movements, which generally supports an upward trend in US Treasury yields. Higher yields on US Treasury securities typically make them more attractive to investors seeking returns. Consequently, this would normally diminish the incentive for investors to seek out higher-yielding investments in emerging markets like Malaysia, as the risk-reward profile would be less favourable compared to developed market bonds.
Factors Influencing Emerging Market Bond Attractiveness

Generally, emerging market bonds are considered more attractive to investors when yields in developed markets, such as US Treasuries, are low. A lower yield environment in developed economies prompts investors to explore emerging markets for potentially higher returns, despite the associated risks. Conversely, when US Treasury yields rise, the differential narrows, making the relative attractiveness of emerging market debt less pronounced. This dynamic typically guides international capital allocation, with significant shifts occurring based on perceived risk and return differentials between markets.
Potential Drivers of Increased Malaysian Bond Investment

While the trend in US Treasury yields would typically deter investment in emerging markets, several other factors could have contributed to the unexpected inflow into Malaysian bonds in November 2019. These might include Malaysia's specific economic outlook, attractive yields relative to other comparable emerging markets even with rising US yields, or a reassessment of risk by foreign investors. The robust issuance of Malaysian Government Securities (MGS) and Government Investment Issues (GII) in November, totalling RM10.7 billion, also provided ample opportunity for investment. Furthermore, corporate bond issuance remained strong at RM8.5 billion, indicating a healthy domestic market that could absorb and attract foreign capital.

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Why did foreign investors unexpectedly boost Malaysian bonds in November?

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