Trump's Victory Sparks Fears of Continued Sell-Off in Ringgit Bonds

Malaysian bonds are facing increased vulnerability to outflows as local yields rise alongside US Treasuries, following Donald Trump’s election win. Analysts suggest this trend could continue, particularly given the sharp ringgit depreciation against a strengthening dollar.

Malaysian bonds saw net outflows of RM11.2 billion (US$2.6 billion) last month — the largest since March 2020 — according to Bank Negara Malaysia (BNM) data. This outflow, coupled with a sell-off in US Treasuries and a weakening ringgit, is pressuring yields higher. Notably, the 90-day correlation between Malaysian bonds and the ringgit has risen to 0.63, signaling that as the ringgit weakens, bond yields tend to rise.

“The election outcome suggests continued dollar strength,” said Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore. “With Treasury yields steepening, there’s a risk of further foreign withdrawal from emerging-market (EM) assets, especially Malaysia’s lower-yielding bonds.”

As Malaysia’s 10-year yield reached a six-month high and the ringgit hit its lowest level since August, EMs globally felt the impact of Trump’s win. Bond outflows were also impacted by diminishing expectations for Federal Reserve rate cuts, following a half-point cut in September. The market also faces headwinds from the ongoing uncertainty over US elections and China’s lackluster stimulus efforts.

The ringgit surged ahead of other EM currencies in Q3, with bonds attracting a cumulative RM18 billion net foreign inflow during the same period, marking the highest inflows since 2012. However, the allure of Malaysian bonds has diminished, as BNM decided to extend its rate pause, while central banks in neighboring countries, including the Philippines, South Korea, Thailand, and Indonesia, have started cutting rates. Indonesia saw a net foreign inflow of US$967 million (RM4.26 billion) into bonds in October alone, marking six consecutive months of gains.

Trade and Tariff Risks Loom

With 11% of Malaysia’s exports directed to the US, the ringgit remains sensitive to potential tariffs that Trump has pledged to impose on imports to bolster US manufacturing.

While overseas investors may be turning away from Malaysian debt, Winson Phoon, head of fixed-income research at Maybank Securities, believes the outflows will remain manageable. “A repeat of the disorderly sell-offs seen in November 2016 is unlikely,” Phoon said, noting that many investors positioned defensively before the election, and foreign ownership in Malaysian government bonds has since declined.

The Malaysian bond market faces a challenging period ahead, as US fiscal policy shifts and geopolitical uncertainties continue to weigh on investor sentiment.