The yield curve for Malaysian local currency (LCY) government bonds fell across all maturities between end-September and end-December 2011. The yield curve then flattened between end-December and 15 March as yields rose at the shortend and the belly of the curve, but dropped at the long-end. Yields at the very short-end rose between 2 basis points (bps) and 4 bps, while 2- and 3-year maturities rose 17 bps and 12 bps, respectively. Yields for the 5-year maturity rose 11 bps, while yields for 4- and 6-year maturities both increased by 6 bps. On the other hand, yields between the 7- and 20-year maturities fell 5 bps– 12 bps. The yield spread between 2- and 10-year maturities narrowed to 92 bps in mid-March from 106 bps at end-December.

Total LCY bonds outstanding reached MYR833.8 billion (US$263.2 billion) at the end of 2011, up 10.4% y-o-y but flat on a quarter-on-quarter (q-o-q) basis. Growth in LCY government bonds eased to 12.0% y-o-y in 4Q11—for a total of MYR499.0 billion (US$157.5 billion)—after posting a 19.8% increase in 3Q11. Central government bills and bonds rose 13.0% y-o-y at end-December versus 10.9% at end-September. However, central bank bills growth slowed to 9.3% y-o-y at end-December from 58.0% at end- September. On a q-o-q basis, total LCY government bonds outstanding fell 1.2% in 4Q11.

Outstanding LCY corporate bonds rose 8.1% y-o-y as of end-2011. However, on a q-o-q basis, total LCY corporate bonds outstanding were unchanged in 4Q11. LCY corporate bonds outstanding have been steadily increasing since 2005, largely driven by the surge in sukuk (Islamic bonds). At the end of 2011, LCY corporate sukuk outstanding stood at MYR206.1 billion, more than double the level from 2006 and more than 5 times the amount in 2001.

Bank Negara Malaysia announced that Renminbi Settlement Services (RSS) were to be included in its Real-Time Electronic Transfer of Funds and Settlement System (RENTAS) beginning 21 March. Bank of China (Malaysia) Bhd. has been appointed as the onshore settlement institution for RSS, which will provide greater efficiency and competitiveness in trade settlement, facilitate bilateral trade between Malaysia and the People’s Republic of China, and provide a natural hedge against the fluctuations and volatility of other currencies while eliminating settlement risk for renminbi transactions.