Foreign outflows from Malaysia’s domestic bond market are likely to slow down, according to Convera Singapore. This shift is primarily driven by growing expectations of Federal Reserve interest-rate cuts, which are beginning to influence investor sentiment. In the previous month, global funds withdrew $1.2 billion from Malaysian sovereign debt, marking the largest outflow since October, a period during which the dollar strengthened for the first time this year.
Separately, MARC Ratings anticipates that Malaysia will continue to attract foreign bond inflows in the second half of 2026, supported by stable domestic economic fundamentals and ongoing institutional reforms. However, the pace of these inflows might be moderated by expectations of at least one Fed rate hike by December 2026 and wider yield differentials between Malaysian Government Securities (MGS) and US Treasuries (UST), which currently favor US assets. Despite this, MGS yields are projected to remain relatively stable, within the 3.60%–3.70% range by the end of 2026.
On the fiscal front, Malaysia's federal government debt ratio decreased to 63.1% of GDP as of end-March 2026, down from 65.2% at the end of 2025. This reduction is attributed to government efforts to strengthen fiscal management and control debt growth. Preliminary data indicates robust GDP growth of 5.8% in the second quarter of 2026, following a 5.4% expansion in the first quarter. Inflation was at 1.9% in June 2026, and unemployment remained stable at approximately 3.0% in May 2026.
