The 10-year MGS reopening auction came with an issue size of RM3 billion, lower than our

10-year MGS auction

• The 10-year MGS reopening auction came with an issue size of RM3 billion, lower than our expectation of RM3.5 billion. Demand was decent and was within expectations. Bid-to-cover ratio was 1.752 times whilst average yield was 3.563% (range 3.530-3.578%) though higher than WI 3.54/53% quoted on Wednesday.
• In the past week, Malaysian sovereign bonds have moved mixed with gainers led by GII papers due to their inclusion into the JP Morgan EM indices. We noted selective GII versus MGS spreads have substantially narrowed since the news was released. The 10-year spread (GII over MGS) is now about 3bps, in contrast to a mean of 16bps since late May, whilst the 5-year spread is around 5bps, compared to the mean of 16bps during the same period.
• Assuming a less hawkish/neutral stance from the Fed chief, we think that the speculation of further stimulus will aid Ringgit bonds in the coming weeks. Furthermore, demand for the 10-year MGS should be supported, amid a lack of supplies, as the next auction will be held in Nov (besides 10-year GII in Oct). We maintain our short term target for the 10-year MGS at 3.42%.