Malaysia’s battered bonds face growing risk of Japan fund exodus

BURSA SGX Home Economic Focus Make The Edge Malaysia your preferred source on Google (Sept 17): Malaysia’s struggling bond market may see an outflow of Japanese capital as its yield premium shrinks.

The premium that 10-year Malaysian bonds command over equivalent Japanese notes has shrunk to around 112 basis points, well below the five-year average of 278 basis points as borrowing costs jumped in Japan, data compiled by Bloomberg show.

The Southeast Asian country’s bonds have been under pressure in recent months, due to increased supply and a stronger-than-expected economy that raised the odds of monetary tightening. The weakness may extend if the Bank of Japan delivers a widely anticipated interest rate hike on Friday, a decision set to intensify worries about the departure of Japanese investors holding a record amount of Malaysia debt.