US rate hike puts Malaysian banks' bond portfolios in spotlight
KUALA LUMPUR: The US Federal Reserve’s 25-basis-point rate hike puts Malaysian banks’ bond portfolios under scrutiny as higher global yields threaten to erode fixed-income valuations.
In a move that could impact Malaysian banks' bond portfolios, the US Federal Reserve has raised its key interest rate by 25 basis points, the first increase since 2023. This decision has already influenced the Malaysian market, with Kenanga Research noting that Malaysian Government Securities (MGS) yields have been closely tied to US Treasury yields.
Kenanga Research predicts that banks could face negative revaluation on their fixed-income securities in Q3 2026 if current yield levels persist. The KL Financial Index has already slipped more than two percent since the end of August, with earnings risk estimated at around three percent. As a result, Kenanga Research suggests that banks with lower exposure to bond-market fluctuations, such as Malayan Banking Bhd, Hong Leong Bank Bhd, and Alliance Bank Malaysia Bhd, may be more resilient.
While immediate bond-market effects are a concern, Kenanga Research emphasizes that underlying fundamentals remain crucial. Banks that can manage their cost of funds effectively may still see healthy loan growth, supporting a longer-term outlook on Maybank and HLB. The firm anticipates Bank Negara Malaysia to hold its overnight policy rate steady, while the broader market grapples with elevated bond yields and oil prices.
Investors may seek refuge in defensive sectors, such as healthcare, with selected oil-and-gas stocks potentially offering alternative opportunities.
Written by urgent.news from New Straits Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
