Fixed Income & Currency Outlook – September 2026

August was a difficult month for bond investors globally. Rising oil prices, persistent inflation, and a hawkish signal from the US Federal Reserve pushed yields higher across major markets.

After spending most of August in a range, US Treasuries sold off steadily in the final week. The benchmark 10-year yield climbed from 4.61% to 4.75% by month-end, its highest level since January 2025. The 30-year yield briefly touched 5.33% on 17 August — the highest since 2007 — as investors demanded greater compensation to hold long-dated US government debt amid concerns over the country's growing fiscal deficit and a heavy schedule of bond auctions.

The month's defining moment came at the Jackson Hole Symposium in late August, where Fed Chairman Kevin Warsh warned that inflation is not significantly slowing and that the central bank may have "work to do." This hawkish message triggered a sharp bond selloff on 31 August, steepening the yield curve.

Malaysian Government Securities (MGS) fared even worse, delivering Southeast Asia's weakest bond performance in August. The 10-year MGS yield jumped by 16 basis points — the largest monthly rise in nearly two years — as investors grew cautious over long-dated bond supply and the possibility of a domestic interest rate hike by Bank Negara Malaysia.

We believe that September is a key month for the bond market. The most important event is the US Federal Reserve's policy meeting on 15–16 September. A rate hike is possible but not certain — the decision is expected to hinge heavily on the August US inflation (CPI) data due this week. Fed Governor Christopher Waller has indicated that continued progress toward the 2% inflation target could support holding rates steady, but any upside surprise in CPI could tip the balance toward a hike.

Additional supply pressure is expected from scheduled US Treasury auctions of 3-year, 10-year, and 30-year bonds, alongside an expanded program of longer-dated bond buybacks. Ongoing US-Iran tensions and oil prices hovering near $96 per barrel add further upward pressure on yields.

For Malaysian bonds, the headwinds from August — supply concerns and rate-hike risk — are likely to persist into September.

In the currency market, the US dolar had a mixed August. The Bloomberg Dollar Spot Index (DXY) fell 0.49% over the month overa’’, as fading expectations of a near-team Fed rate hike weighted on the greenback through mid-August. The euro gained 0.79% against the dollar, and the British pound rose 0.49%. The Japanese yen was the notable underperformer among major currencies, weakening 1.49% against the dollar.

Across Emerging Market Asia, most curreincies strengthened against the dollar during August, with the Indonesian rupiah leading gains (+1.56%). The Phillippine peso was the clear outlier, falling 1.66% against the dollar — extending its year-to-date loss to 6.2% — as the country's heavy reliance on oil imports left it particularly exposed to rising crude prices.

The Malaysian ringgit (MYR) was one of August's standout performers in the region. USD/MYR fell from approximately 4.0855 at the start of the month to around 4.0250 by late August, representing a ringgit appreciation of roughly 1.5%. However, the ringgit gave back some gains in the final days of August after Warsh's hawkish Jackson Hole speech revived dollar demand.

The dollar has started September on the back foot as traders trimmed Fed rate-hike bets and the Japanese yen surged. Fed Governor Christopher Waller's comment early in the month that inflation is making progress has been interpreted by traders as a signal that a September hike is not a foregone conclusion. Markets currently price roughly even odds of a Fed hike at the 15–16 September meeting.

Key events that could move FX markets this month include the US CPI data this week, as a hotter-than-expected reading would likely boost the dollar and pressure EM currencies. Additionally, the yen spike in early September raised speculation regarding possible intervention or a back-to-back rate hike, which could further strengthen the yen and ripple across Asian FX. Finally, rising US-Iran tensions and oil above $95/bbl remain a headwind for oil-importing currencies such as the Philippine peso and dampen risk appetite for EM currencies more broadly.

For the ringgit, the outlook is balanced. Positive domestic growth momentum and a broadly weaker dollar provide support, but a potential Fed rate hike or additional escalation in the Middle East could reverse recent gains. Traders will watch comments from Bank Negara Malaysia officials as speculation builds for a policy rate hike.