FX.co ★ Malaysia 10-Year Yield Hits Nearly 2-Year High

Malaysia’s 10-year government bond yield has climbed to 4.22%, its highest level since December 2024, mirroring a global surge in bond yields after the Federal Reserve delivered its first interest rate increase in three years. The move has intensified selling pressure on Malaysian government securities, already weighed down by rising bond supply and mounting expectations that Bank Negara Malaysia will soon begin tightening policy.

Earlier this month, the central bank opted to keep its policy rate unchanged but signaled that rate hikes may be on the horizon. This comes on the back of a 6% year-on-year expansion in the economy in the second quarter, underpinned by resilient domestic demand and strong export performance.

Interest rate swaps now reflect an 80% probability of a cumulative 50-basis-point rate increase over the next 12 months, a sharp repricing from under 25 basis points implied at the end of August. At the same time, rising interest rates in Japan have heightened the risk of a reversal in yen-funded carry trades. Such an unwinding could prompt foreign investors to pare back their holdings of Malaysian bonds, exerting further upward pressure on yields.