KUALA LUMPUR: The yield on the 10-year Malaysian Government Securities (MGS) may drop to 3.60 per cent from the current level of about 3.80 per cent by year-end, according to MIDF Research.
The firm said due to the historically strong correlation between MGS and US Treasury (UST) yield movements, the Federal Reserve's expected monetary easing is likely to attract foreign capital into Malaysia's debt market.
"This expectation is predicated on the narrowing interest rate differential between emerging markets and developed economies.
"Furthermore, Malaysia's ongoing commitment to structural reforms, fiscal consolidation efforts, and a positive economic outlook are expected to further incentivise foreign investment. However, emerging risks to this forecast warrant consideration," the firm said in a note.
MIDF Research said a delay in the Fed's rate cuts, prolonged strength in the US dollar and renewed inflationary pressures could maintain yields at the current levels for an extended period, particularly in the short term.
"Conversely, recent developments in the futures market indicate that global investors are pricing in three to four rate reductions by the Federal Reserve for the remainder of the year.
"This suggests a potential downward trajectory for UST yields, which would likely exert downward pressure on MGS yields, aligning with our end-2025 projection," it added.
The firm noted that ongoing trade disputes and the introduction of tariffs are raising concerns about a possible slowdown in US economic growth and rising inflationary pressures.
At the same time, market sentiment has turned more cautious, which could prompt investors to shift capital from equities to US Treasuries, seen as a safer investment option.
"The MGS yield curve also shifted lower last month, tracking the movement in the UST yields, which saw the biggest -11 basis points (bps) decline in the two-year tenure to 3.89 per cent.
"Meanwhile, the 10-year MGS yield declined by -1.0bps to 3.77 per cent. The 10-year yield generally was stable in March 2025, averaging around 3.80 per cent," said MIDF Research.