WHILE the bond market has been relatively stable in recent weeks since recovering from a major selloff in the first quarter of the year, pressure is seen rising again towards the end of 2021, as investors price-in the risk of tapering and interest rate hikes by the US Federal Reserve (Fed).
Locally, the expected increase in bond issuances will also cause volatility in the market.
“At the moment, the relatively stable and range-bound movement in the US Treasury is positive for the local bond market... but there could be some downside risk posed by a potential tapering by the Fed,”
Affin Hwang Asset Management senior portfolio manager for fixed income, Ahmad Raziq Ab Rahman, says.Affin Hwang AM expects the Fed to start communicating its quantitative easing (QE) tapering plan next month. It says the Fed could look at tapering its massive bond-buying programme by early 2022. This could lead to higher volatility in markets and a spike in US Treasury yields, and in tandem, an increase in Malaysian bond yields.
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