The US Treasury (UST) market showed a mixed performance last week as cited by MIDF Investment Bank Bhd in their report today, as investors reacted to the unexpected election victory of former President Donald Trump and the US Federal Reserve's rate cut. The shorter end of the curve (< 5 years) saw declines, while the longer end (> 5 years) ended in the green.

The benchmark 10-year yield closed at 4.30%, a decrease from the prior week's 4.38%. This led to a flattening of the yield curve, with the 10-year and 3-year yield spread narrowing to +11 basis points (bps), compared to the previous week's +20bps. Market expectations suggest that a further 25bps rate cut could occur in December 2024.

Inflation expectations have also shown an uptick, with the medium-term inflation expectation (MTIE) rising to 2.42%, up from 2.38% the week prior. Despite this increase, the MTIE remains above the Fed's target of 2.0%, reflecting concerns over inflationary pressures. However, there is a belief in the market that underlying inflationary pressures might have reached their peak.

On the local front, the Malaysian Government Securities (MGS) market saw higher prices last week. The 3-year and 10-year MGS yields dropped by 4.9bps and 4.0bps, closing at 3.49% and 3.88%, respectively. The 10-year to 3-year yield spread expanded slightly from 38bps to 39bps, as the short-end outperformed.

The foreign holdings of MGS rose to a new record high of RM289 billion in September 2024, up from RM270 billion in September 2023, and RM288 billion in August 2024. This increase in foreign interest is a positive signal for the Malaysian bond market.

On Bursa Malaysia, the foreign net equity trade for the 12-month rolling sum ended the week at RM2.15 billion. This marks a decline from RM3.18 billion in the previous week but an improvement from a negative RM5.18 billion during the same period last year.