KUALA LUMPUR – Non-residents stepped up buying of government bonds and this was reflected in the inflows of RM15bil into the government bond market in April and May, says the Financial Markets Committee (FMC).

The FMC said on Wednesday this was in contrast with outflows observed between January to March, which recorded total government bond divestments of RM34.3bil, of which 95% comprised of short-term papers.

“Non-resident holdings of government bonds increased by RM9bil with more than 70% into medium to longer term papers, accounting for 26.3% of the total outstanding as at end-May 2017,” it said in its update on the Malaysian Financial Market.

The FMC, which is a committee established by Bank Negara Malaysia (BNM) in May 2016, elaborated that the Malaysian bond market continued to attract interest with the last three primary auctions of government bonds recorded participation from diverse types of investors.

“The recent Malaysian Government Securities (MGS) auction recorded a healthy bid-to-cover ratio of 3.3 times.

“The average daily trading volume in the secondary bond market recorded a level of RM3.6bil in May (April: RM3.7 billion). MGS short-selling volume has increased slightly to RM1.1bill in May from a monthly average of RM872mil prior to the announcement,” it said.

The FMC also said the market has shown enhanced activities following the recent introduction of the second package of financial market development measures.

The greater interest in emerging market financial assets globally had also resulted in an increase of non-resident investments into the domestic bond market with smaller volume into the equity market.

The ringgit strengthened by 1.4% in May and traded within the range of 4.26 to 4.35 against the US$ to close at 4.28 as at month-end.

The onshore foreign exchange market sustained a daily average volume of US$9.4bil, of which trading volume for ringgit currency pairs recorded a daily average of US$5.2bil for May (April: US$9.9bil and US$6.2bil respectively).

The FMC said of this, the spot and forward transactions recorded an average of US$2.4 bil daily.

“The exchange rate remains stable with US$/RM one-month implied volatility at an average of 5.0% this year. Average intraday movement recorded a daily average of 89 points while the bid-ask spread recorded an average of 26.4 basis points since end-April 2017,” it said.

For the trade sector, data continues to indicate a more balanced forex flow between exports and imports.

Net forex conversion for May was US$1.1bil. Year-to-date, a total of US$135bil of foreign exchange transactions in relation to exports and imports of goods was recorded.

The FMC said with the additional flexibility accorded to fund managers recently, an additional 10 fund managers registered in May, bringing the total number of registered fund managers to 44, with RM102.9bil of eligible assets under management (AUM) under the dynamic hedging framework.

In 2017, six additional non-resident banks have attested against offering or trading of ringgit non-deliverable forward (NDF) in the offshore market with a total of 22 institutions attested since November 2016.

“BNM will continue to seek wider compliance to the non-facilitation rule from offshore financial market players.

“BNM and FMC will continue to engage all stakeholders to ensure successful implementation of initiatives introduced, while remain focused in creating a conducive and orderly financial market environment to facilitate business and for the benefit of the economy,” it said.