252) Bond Fund Performance When OPR Reduced

252) Bond Fund Performance When OPR Reduced

Have you wondered what happens to a typical Unit Trust Bond fund when the Bank Negara Malaysia reduces the Overnight Policy Rate (OPR)?

See for yourself the performance over the last 4 OPR reductions.

Source: https://www.bnm.gov.my/index.php?ch=mone&pg=mone_opr_stmt

1) OPR reduced 0.25% from 3.25% to 3.00% on 7 May 2019
2) OPR reduced 0.25% from 3.00% to 2.75% on 22 Jan 2020
3) OPR reduced 0.25% from 2.75% to 2.50% on 3 Mar 2020
4) OPR reduced 0.50% from 2.50% to 2.00 on 5 May 2020

1) OPR reduced 0.25% from 3.25% to 3.00% on 7 May 2019

A typical bond fund performance from 1 Apr 2019 to 31 May 2019.
The Bond fund performance increased more than previous rates.

2) OPR reduced 0.25% from 3.00% to 2.75% on 22 Jan 2020

A typical bond fund performance from 1 Jan 2020 to 29 Feb 2020.
The Bond fund performance increased more than previous rates.

3) OPR reduced 0.25% from 2.75% to 2.50% on 3 Mar 2020

A typical bond fund performance from 1 Feb 2020 to 31 Mar 2020.
The Bond fund performance maintained for a short while and then turned negative. This could be the effect of foreign bond investors taking profit and sell off their bonds after the recent 3 OPR reductions in 2020. The Ringgit depreciation against other currencies also affect the bond values.

Foreigners sold RM17.8b Malaysian bonds, equities in March — highest since May 2018
https://www.theedgemarkets.com/article/foreigners-sold-rm178b-malaysian-bonds-equities-march-%E2%80%94-highest-may-2018-0

For more readings on what affects bond prices link below:
http://highlevelrules.blogspot.com/2020/03/241-factors-affect-bond-prices.html

4) OPR reduced 0.50% from 2.50% to 2.00 on 5 May 2020

A typical bond fund performance from 1 Apr 2020 to 6 May 2020.
The Bond fund performance increased more than previous rates with more bond investors expected further OPR rate cuts.

News published on 3 Apr 2020 on BNM Annual Report 2019: 2020 Monetary policy to support economic growth amid subdued inflation.
https://www.theedgemarkets.com/article/bnm-annual-report-2019-2020-monetary-policy-support-economic-growth-amid-subdued-inflation

News published on 23 Apr 2020 on BNM expected to cut OPR by another 75 basis points.
https://www.theedgemarkets.com/article/bnm-expected-cut-opr-another-75-basis-points-%E2%80%94-cgscimb

News published on 30 Apr 2020 on BNM seen slashing OPR by 50bps.
https://www.theedgemarkets.com/content/evening-5-bnm-seen-slashing-opr-50bps-0

Bond Fund Performance since 1 Jan 2020

A typical bond fund performance from 1 Jan to 6 May 2020 when there were 3 OPR reductions in 2020.

Bond Fund Performance since 1 Apr 2019

A typical bond fund performance from 1 Apr 2019 to 6 May 2020 when there were the 4 OPR reductions.

Bond Fund Performance since 10 May 2010 to 6 May 2020

Bond Fund = 68%
12 Month FD = 36%

We can summarize that Bond Funds gives a better return than Fixed Deposit in the longer term. Furthermore, bond funds have more fluctuations due to other factors affect the bond prices.

Please contact and discuss with your Financial Consultant on the financial options available for you.

Other Related Articles

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http://highlevelrules.blogspot.com/2020/03/241-factors-affect-bond-prices.html

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https://highlevelrules.blogspot.com/2020/03/239-bond-specification-calculation.html

230) Differences between investing into Bond Market vs Bond Fund 

http://highlevelrules.blogspot.com/2019/07/330-bond-market-vs-bond-fund.html

222) Does Bond Fund Move Opposite to Equity Fund?
http://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html

22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html