Instruments, Investor Base, and Recent Developments in the Malaysian Government Bond Market

IMF Working Papers, April 26, 2018

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Canonical URL: Instruments, Investor Base, and Recent Developments in the Malaysian Government Bond Market

Foreign holdings of Malaysian local currency (LCY) government bonds have increased since the global financial crisis.
Micro-level bank by bank and fund by fund data shed light on the key features of LCY government bonds including their investor base.
To gain exposure to the Malaysian credit, holding cash bonds is generally only one part of the strategy of foreign investors and in many cases FX derivatives are involved.
The availability of an efficient FX derivatives market could help to attract a wider range of foreign investors and enrich the bond market.
Analysis of the risk related to foreign ownership ideally could also cover the role of derivatives.
Despite the importance of foreign investors, domestic participants, as the core investor base, could help to ensure the stability and proper functioning of the bond market.

Improve the efficiency and availability of the FX derivatives market to attract a wider range of foreign investors and deepen the LCY government bond market.
Incorporate the role of derivatives into risk assessments of foreign ownership to capture FX and counterparty channels of vulnerability.
Support and preserve domestic participants as the core investor base to promote market stability and proper functioning.

Analysis is based on micro-level bank by bank and fund by fund data to identify investor strategies and exposures.
Emphasis on interactions between cash bond holdings and FX derivative positions in assessing foreign investor behavior and risk.

Subject: Asset and liability management, Banking, Bonds, Financial institutions, Financial markets, Foreign exchange, International liquidity, Securities markets, Sovereign bonds
Keywords: bond, Bonds, FX, FX derivative, FX derivatives, FX exposure, FX position, FX risk, FX volatility, Global, International liquidity, investor, local currency government bonds, Malaysia, Malaysian government securities, MGS holding, secondary market, Securities markets, Sovereign bonds, WP

Source: Instruments, Investor Base, and Recent Developments in the Malaysian Government Bond Market — IMF Working Papers, April 26, 2018.