Regulated Short-selling of Bonds: A Positive Step, Nascent Stage
· Regulated short-selling of government bonds will liberalised by widening the access to all domestic investors. This aims to boost liquidity and facilitate effective hedging of interest rate risks.
· The most significant step announced yesterday, however, is the relaxation onshore hedging by allowing registered non-bank entities fully and actively hedging their FX exposures. This is a big step up from a dynamic hedge ratio of 25% previously.
· Market reacted positively with MGS yields down about 3-6bps and USDMYR down about 200pips since the announcement.