KUALA LUMPUR, Sept 10 (Bernama) — MBSB Investment Bank Bhd (MBSB IB) has revised its 2025 projection for the 10-year Malaysian Government Securities (MGS) yield to end the year at around 3.40 per cent, following the recent overnight policy rate (OPR) cut.
The investment bank said the MGS yields mostly moved higher last month, with the biggest move at the 10-year tenor, rising by 21 basis points to 3.37 per cent in August 2025.
The 10-year MGS has oscillated within a tight range between 3.36 per cent and 3.39 per cent, being stable after the decline seen in July, especially after the OPR cut.
“We expect the current compressed spread between the MGS and OPR, hovering around 50 basis points to 60 basis points, to persist, and this is a lower-than-average spread, suggesting the market is anticipating another OPR cut this year,” it said in a research note.
Following the latest Bank Negara Malaysia (BNM) rate cut in July, MBSB said the differential between the OPR and the United States (US) Federal Funds Rate (FFR) has expanded.
“We project that this gap will persist in the near term. Our forecast does not include any additional OPR cuts for the remainder of the year, but we anticipate the US Federal Reserve (Fed) will continue its policy adjustment of lowering the FFR,” it said.
MBSB said the divergence in policy setting will cause the interest rate differential, a critical component of our market outlook, to gradually decrease, and as a result, the bank expects the OPR-MGS spread to normalise as market participants react to the diminished probability of another OPR rate cut.
It said several key developments are poised to strengthen the MGS market and boost investor confidence, including the government’s recent decision to expand the sales and service tax in July 2025, which demonstrates a commitment to fiscal improvement.
“This is further reinforced by the 13th Malaysian Plan, which outlines a clear goal of reducing the fiscal deficit to below 3.0 per cent of gross domestic product by 2030.
“These measures, combined with the domestic consumption support from a recent mini-stimulus package and the latest OPR cut, create a positive environment for increased MGS inflows,” it stated.
Moreover, MBSB opined that investors will have their eyes on Malaysia’s upcoming 2026 Budget announcement.
“Despite concerns over the impact of higher tariffs and potentially weaker external demand, Malaysia’s growth fundamentals remain robust, supported by stable and manageable inflation and still resilient domestic demand,” it said.
The bank said a potential delay in the Fed rate cuts, a persistently strong US dollar, and renewed inflationary pressures could sustain current MGS yield levels in the short term.
Furthermore, it said futures market trends currently suggest an additional Fed rate cut, with three cuts in each remaining meeting for the year, beginning in September 2025.
“While potential downward pressure on the US Treasury yields could lead to lower MGS yields, the impact may be limited due to the recent weaker sensitivity of the two markets.
“Therefore, close monitoring of these factors is crucial for the Malaysian debt market outlook,” it added.
— BERNAMA
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