Malaysia’s 10-year government bond yield rose to 4.22%, its highest level since December 2024, tracking a surge in global bond yields following the Federal Reserve’s first rate hike in three years. This added to pressure on Malaysian bonds amid increased bond supply and growing expectations of monetary tightening by Bank Negara Malaysia. The central bank maintained its rate pause earlier this month while signaling potential rate hikes ahead, after the economy grew 6% year-on-year in the second quarter, driven by continued domestic demand and robust exports. Swaps now imply an 80% chance of a 50-bps rate hike over the next 12 months, up from pricing of less than 25 bps at the end of August. Meanwhile, higher Japanese rates have increased the risk of yen-funded carry-trade unwinding, potentially prompting foreign investors to reduce exposure to Malaysian bonds and further pushing yields higher.