Malaysian government securities and the bond market: MGS, GII and sukuk

What are Malaysian Government Securities (MGS)?

MGS are long-term bonds the Government issues to finance development expenditure. They pay a fixed coupon every six months and repay the principal in full at maturity, with original tenors of 3 to 30 years.

BNM auctions MGS on behalf of the Government. Successful bidders are those offering the lowest yields, and the coupon is set at the weighted average yield of the successful bids. An auction calendar for the following year is announced at year-end, and the actual issue size is announced a week before each issue. BNM has also offered callable MGS since December 2006.

The Government regularly issues 3-, 5-, 7- and 10-year MGS as benchmarks, and often reopens them to enlarge their size and support liquidity. It has also issued 15- and 20-year MGS to extend the yield curve.

What is GII and how is it different from MGS?

GII is long-term Government paper issued under Shariah principles to fund development expenditure. BNM describes conventional and Islamic Government securities as differing only in structure: their effective cash flows, issuance process and legal status as a direct obligation of the Government are similar.

GII is based on Murabahah, a deferred mark-up sale of an asset such as a commodity (mainly crude palm oil), which creates a debt between the issuer and investors. It pays a profit rate rather than interest.

• Structure: MGS is conventional and interest-bearing; GII is Shariah-compliant, based on Murabahah.
• Payments: MGS pays interest semi-annually; GII pays profit semi-annually, at a rate set by the weighted average successful yield.
• Auction bidders: MGS bids come from Principal Dealers; GII bids come from Islamic Principal Dealers.
• Tenor and redemption: both run from 3 to 30 years and are redeemed at par on maturity.

What are Treasury bills and BNM Monetary Notes?

• Malaysian Treasury Bills (MTB): short-term Government securities for working capital, sold at a discount with original maturities of 3 months, 6 months and 1 year, and auctioned weekly.
• Malaysian Islamic Treasury Bills (MITB): the Islamic equivalent, based on Murabahah, usually issued weekly with a 1-year original maturity. Both conventional and Islamic institutions can buy and trade them.
• Bank Negara Monetary Notes (BNMN) and BNMN-i: securities BNM issues to manage liquidity in the conventional and Islamic money markets, with maturities of up to three years, issued at a discount or with a coupon or profit rate.

How are government securities issued?

Issuance runs through BNM's Fully Automated System for Issuing/Tendering (FAST), a central system for originating debt securities by tender or private placement. FAST also holds information on debt securities, is linked to RENTAS for allotment and settlement, and sends information on debt securities to the electronic trading platform (ETP) run by Bursa Malaysia.

Principal Dealers and Islamic Principal Dealers are appointed by BNM for a set period. They underwrite Government and BNM securities sold by tender through FAST and, in the secondary market, must support liquidity by always quoting two-way prices.

Who can take part in FAST?

• Licensed financial institutions and intermediaries regulated by BNM or the SC.
• Qualified institutions that take part in ringgit debt securities issuance or the money market.
• Institutions with specialised roles, such as credit rating agencies and financial information providers.
• Asset managers, investment agencies and institutional investors that use FAST for financial information.

How are corporate bonds and sukuk issued?

Unlisted corporate bonds and sukuk are offered under the Securities Commission Malaysia's (SC) Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, first issued on 9 March 2015 and most recently revised on 30 March 2026. Under this framework the issuer lodges the required information and documents with the SC before launch, instead of seeking the SC's approval, provided all the requirements are met.

• Only a corporation within the meaning of the Capital Markets and Services Act 2007, or a foreign government, can issue under the framework.
• Where a ringgit bond or sukuk is rated, the rating must come from a credit rating agency registered with the SC.
• Ringgit corporate bonds and sukuk must be issued or tendered on FAST and issued on a scripless basis, deposited and settled in RENTAS, unless they seek a full listing on a stock exchange.
• Bonds and sukuk must be issued within 90 business days of lodgement; for a programme, this applies to the first issue.
• Sukuk must use Shariah principles endorsed by the SC's Shariah Advisory Council and also comply with the SC's Guidelines on Islamic Capital Market Products and Services.

Where are Malaysian bonds traded and settled?

Government securities trade over the counter. RENTAS (the Real-time Electronic Transfer of Funds and Securities System) is BNM's multi-currency real-time gross settlement system for interbank payments, a securities settlement system and the scripless depository for all unlisted debt instruments. eSSDS, part of RENTAS, computes corporate actions such as coupon payments and handles retail bond issuance.

For pricing, indicative yield-to-maturity contributors appointed by BNM submit daily quotes through FAST for both Government securities and corporate bonds and sukuk by 4.30pm, so that a consolidated rate can be published by 5pm.

Fixed income training from Ogos Learning

Ogos Learning runs fixed income and derivatives training for bank and capital market teams, covering the Malaysian bond and sukuk market. Founder and principal trainer Jin Yoong Chong, CFA, is an HRD Corp accredited trainer who has run accredited CPE courses for capital market licence holders since 2010. He has served as President of the CFA Society Malaysia and authored the PKMC Module 2, 3 and 4 textbooks with AICB.