Weekly Market Review

US

US equities were weaker last week, with the S&P 500 falling 2.0%, as tensions in the Middle East escalated further. In Asia, the MSCI Asia ex-Japan index declined sharply by 6.4% last week. The biggest declines were seen in markets that had previously been strong performers, particularly North Asia where Taiwan’s country benchmark index fell about 5.1%, while Korea’s KOSPI dropped a steeper 10.6%. ​

US-Israel and Iran Tensions | Market Update ​

Oil prices surged past the US$100 mark amid reports of widening strikes across neighbouring countries, with several Gulf states experiencing disruptions to oil and gas production.​

A key concern for markets continues to centre around the Strait of Hormuz. Over 30% of global seaborne crude oil and about 20% of global LNG shipments pass through this narrow waterway. Therefore, a sharp drop in shipping volumes has immediate implications for global energy supply and logistics.​

While the strait technically remains open, shipping activity has slowed dramatically as vessels grow increasingly reluctant to transit the area due to heightened security risks. Production disruptions are already beginning to emerge across the region. Saudi Arabia has reduced output, while Iraq has reportedly halted more than half of its production. Kuwait has declared force majeure on oil exports, Abu Dhabi has indicated it will trim production at offshore fields, and Qatar has declared force majeure on LNG exports.​

A critical factor now is storage capacity. Some producers have buffers that allow them to continue pumping oil even if exports are temporarily disrupted. For instance, Saudi Arabia can store roughly 36 days of production, and potentially up to 65 days if crude is rerouted through pipelines.​

However, other countries have less flexibility. Iraq’s storage capacity is estimated at around 6 days, while Kuwait can only store about 14 days. Countries with limited storage are therefore forced to halt production sooner if export routes remain constrained.​

At the same time, the ongoing conflict is exposing the structural vulnerabilities of several Gulf states, including Qatar, Kuwait, Bahrain, and the United Arab Emirates. These countries possess numerous “soft targets” that are difficult to defend comprehensively — such as desalination plants, oil infrastructure, ports, airports and tourism assets. ​

In latest developments, Iran has also appointed a new Supreme Leader following the death of Ali Khamenei, who was reportedly killed at the onset of the conflict. Iran’s clerical leadership moved quickly to install his son, Mojtaba Khamenei, as the new Supreme Leader. Regional officials view the appointment as a clear signal that Tehran’s hardline factions intend to maintain a confrontational stance.​

However, several constraints may help prevent the conflict from escalating into a full ground invasion. For Washington in particular, domestic political considerations remain an important constraint. US voters have historically shown little appetite for prolonged overseas conflicts, and although Trump has mentioned the possibility of deploying ground forces, there is currently no visible military build-up along Iran’s borders that would suggest an imminent ground invasion.​

Similarly, Iran’s conventional military capabilities have been significantly degraded. Reports indicate that its air force and naval capacity have been heavily damaged, while US officials say Iranian missile launches have fallen by roughly 90% following strikes by US bombers.​

The situation remains highly fluid as the cycle of retaliatory attacks continue. There are three (3) key indicators that markets are closely monitoring:​

US Treasury yields moved sharply higher last week, rising about 20 bps to touch a high of 4.17% beforeending the week around 4.14%. The sell-off largely reflected renewed inflation concerns following the sharpspike in oil prices.​

In terms of rate expectations, markets have begun to recalibrate the outlook for US Federal Reserve policy.Earlier in the year, the consensus expectation had been for roughly 2 rate cuts in 2026. That outlook hasnow shifted closer to 1 cut, with the timing also pushed further out from July to now September.​

On the data front, the key release was labour market data, which came in softer than expected. Non-farmpayrolls for February showed a decline of about 92,000 jobs, compared with expectations for an increase ofaround 50,000 and below the downwardly revised January figure of 126,000. This marks the third instancein the past 5 months where the economy has recorded a net loss of jobs. The weakness was partlyattributed to industry-specific disruptions, particularly strikes in parts of the healthcare sector.​

Looking ahead, the coming week will again be data heavy. Markets will be closely watching upcominginflation readings, particularly CPI and the Fed’s preferred gauge, the PCE index, as these will providefurther clarity on inflation.

Regional Fixed Income

Primary issuance was disrupted last week. On Monday, Asia and US borrowers largely stood down, postponing issuance. Activity partially resumed from Tuesday, but execution remained fragile with multiple go/no-go calls by dealers. Over the week, US IG issuance totaled approximately USD 50.5 billion, below the pre-conflict consensus of USD 65 billion. Year-to-date supply stands at roughly USD 450 billion, 11% ahead of last year, with around USD 60 billion expected to return to the market next week as deferred deals are priced.​

In the Asia Pacific (APAC) region, issuance was light at around USD 2.1 billion, down over 70% week on week. Year-to-date, Asia ex-Japan USD issuance totals about USD 60 billion, up 17% year on year.​

On the credit front, Fitch Ratings revised Indonesia’s BBB sovereign outlook to negative, citing policy uncertainty, following a similar move by Moody’s. Indonesian IG spreads widened roughly 10 bps last week. Our Indonesia positions were already light, with profits largely taken prior to the announcement.​

From a portfolio perspective, funds were net sellers of credit, taking profits on more volatile positions to
manage fund volatility. There were no primary deals participated in, and cash levels remain around 2–5%.​

Domestic Fixed Income ​

Last week, the local bond market saw Malaysian Government Securities (MGS) yields end higher, with most tenors rising 1–7 bps amid heightened geopolitical tensions and tracking global bond yields.​

On a weekly basis, the 3-year MGS closed at 3.10% (+7 bps), the 10-year at 3.55% (+7 bps), while the 30- year remained unchanged at 4.02%. There were no auctions last week, but attention is on today’s reopening of the GII 740, a 15-year benchmark Islamic government bond, with a total issuance of RM5 billion—RM3.5 billion via public auction and RM1.5 billion through prior placement.​

In the corporate space, there were 2 issuances of private debt securities (PDS). Tenaga Nasional Berhad (TNB) Power Generation issued RM1.5 billion across 10-, 15-, 20-, and 25-year tranches, with spreads​ around 27–28 bps. Sunway Treasury Sukuk Berhad (Sunway Treasury Sukuk) issued RM900 million across 5- and 7-year tranches, rated AA-, with spreads of 45 bps and 40 bps respectively.​

Bank Negara Malaysia (BNM) maintained the OPR at 2.75%, in line with market expectations. The statement was neutral, noting ongoing risks and uncertainties while reaffirming confidence in economic fundamentals. Headline inflation is expected to remain moderate, with core inflation stable, though market participants continue to monitor oil price movements.​

From a portfolio perspective, selective rebalancing continued, taking profits to enhance portfolio carry and manage duration. Cash levels remain at approximately 3–4%, with portfolio yields ranging between 5.2% and 6.8%.