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Malaysia yield curve: the 10-year minus 2-year MGS spread has not inverted since 2007

The gap between Malaysia's 10-year and 2-year MGS yields was 62.8 basis points at end-August 2026, close to its median. It has not turned negative in 236 month-ends. What the spread said before past downturns, and what it cannot tell you.

CapsWindowPublished: 9 October 2026

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Key takeaways

In this note Malaysia's curve spread is the 10-year MGS yield minus the 2-year MGS yield, both from BNM's month-end market indicative yields (Table 2.5). At end-August 2026 it was 62.8 basis points, against an average of 70.0 and a median of 60.6 since January 2007.
The spread has not been negative in any of 236 month-ends. The narrowest reading was 7.2 bp in March 2007; since 2008 the narrowest was 20.3 bp in August 2019.
Of the eight quarters of negative seasonally adjusted growth since 2015, most came from the pandemic and lockdowns, which no yield curve could foresee. A flat curve in 2019 and 2023 was followed by one weak quarter at most.
The US 10-year minus 2-year spread was inverted for 26 months (July 2022 to August 2024) without a US recession, so the signal is unreliable even where it is best known.
The 2-year MGS yield is 49 bp above the 2.75% OPR, which suggests the market was not pricing rate cuts at end-August.

The yield curve is one of the most quoted recession signals. In Malaysia it has been almost silent: it has never turned negative in the data BNM publishes monthly. That is worth understanding before reading too much into any single month.

What is the yield curve spread, and which tenors does Malaysia use?

The spread is a long-term government bond yield minus a short-term one. When it is negative (inverted), investors accept less for lending long than for lending short, which is often read as an expectation that rates and growth will fall.

For Malaysia this note uses the 10-year minus the 2-year MGS yield, both month-end market indicative yields from BNM’s Table 2.5. The tenor matters:

Visual guide

What is the yield curve spread, and which tenors does Malaysia use?

BNM Table 2.5 (used here)
Tenors
2-year and 10-year
Frequency
Month-end
BNM benchmark closing yields
Tenors
3-year (Mar-2029) and 10-year (Jul-2035); no 2-year benchmark
Frequency
Daily, trading days only
ADB AsianBondsOnline (data: Bloomberg)
Tenors
2-year and 10-year
Frequency
Daily, monthly averages

Selected entries from the table below. Its dates, units, definitions and limitations still apply.

Sources ↓

Series	Tenors	Frequency
BNM Table 2.5 (used here)	2-year and 10-year	Month-end
BNM benchmark closing yields	3-year (Mar-2029) and 10-year (Jul-2035); no 2-year benchmark	Daily, trading days only
ADB AsianBondsOnline (data: Bloomberg)	2-year and 10-year	Daily, monthly averages

On 8 October 2026 BNM’s daily page showed a 10-year close of 3.96% and a 3-year close of 3.48%, a 48 bp gap. That is a different measure from the 10-year minus 2-year spread below.

Where is the spread now?

62.8 bp

10-year minus 2-year MGS yield at end-August 2026 (BNM month-end). Median since 2007: 60.6 bp

Measure	Value
End-August 2026	62.8 bp (3.867% − 3.239%)
Average since January 2007	70.0 bp
Median	60.6 bp
Widest	181.2 bp, June 2009
Narrowest	7.2 bp, March 2007
End-September 2026, ADB (supplementary)	69.2 bp (4.048% − 3.356%)

Over the past year the spread moved between about 42 and 63 bp: 44.7 bp in September 2025, 57.9 bp in December, 41.7 bp in June 2026 and 62.8 bp in August. The August widening came from the long end: the 10-year rose 16.1 bp in the month while the 2-year rose only 1.6 bp.

Did a flat curve come before Malaysian downturns?

The curve never inverted, so the test here is whether unusually narrow spreads came before weak quarters. Quarter-on-quarter growth is calculated from OpenDOSM’s seasonally adjusted real GDP, which starts in 2015; earlier years use year-on-year growth.

Episode	Narrowest spread	What followed	Reading
2007	7.2 bp (March 2007)	Year-on-year contraction in 2009 Q1-Q3 (−5.8%, −3.7%, −1.1%)	Looks like a hit, but almost two years later and driven by the global financial crisis
2019	20.3 bp (August 2019), narrowest since 2008	2019 Q4 −1.67% q/q, then the 2020 pandemic	Partly right; the pandemic itself could not be forecast
2021	Spread steep, 90-138 bp	2021 Q2 −0.33% and Q3 −2.90% q/q	Missed; lockdowns
2022	53-127 bp	2022 Q4 −0.40% q/q	Missed
2023	27.6 bp (December 2023)	No negative quarter in 2024-2025; 2026 Q1 −0.03% q/q while year-on-year growth was +5.4%	Mostly a false alarm

Since 2015 there have been eight negative quarters: 2019 Q4, 2020 Q1, Q2 and Q4, 2021 Q2 and Q3, 2022 Q4 and 2026 Q1. Most of them are about the pandemic, not the business cycle the curve is supposed to track.

The US curve inverted for 26 months without a recession

The best-known version of this signal is the US 10-year minus 2-year spread. On FRED’s T10Y2Y monthly averages, it was negative from July 2022 to August 2024, 26 months, the longest run since the series began in 1976. The United States did not enter a recession during or after that period. If the signal can stay wrong that long in the market where it was studied most, a single reading in Malaysia should be treated as one input, not a forecast.

What does the 2-year yield minus the OPR say?

The 2-year yield sits close to where the market expects the policy rate to average over two years, plus a small premium.

Date	2-year MGS	OPR	Gap
End-August 2026 (BNM)	3.239%	2.75%	+49 bp
End-September 2026 (ADB, supplementary)	3.356%	2.75%	+61 bp

A 2-year yield well above the OPR is not what a market expecting cuts would produce. BNM kept the OPR at 2.75% on 3 September 2026, noting headline inflation averaged 1.8% in the first seven months and growth of 5.7% in the first half.

Compare how savings grow at different rates →

What are the limits of this signal in Malaysia?

BNM's 2-year and 10-year values are month-end indicative yields, not the average of the month, and Malaysia has no daily 2-year benchmark. GDP quarter-on-quarter growth is our calculation from OpenDOSM seasonally adjusted levels, available only from 2015. With no inversions and only a handful of narrow episodes in 20 years, there are too few cases to measure the signal's accuracy. A narrow spread and a weak quarter appearing together is not proof that one caused or predicted the other.

Questions & answers

Has Malaysia's yield curve ever inverted?

Not on BNM's month-end series. In all 236 month-ends from January 2007 to August 2026 the 10-year MGS yield was above the 2-year. The closest it came was 7.2 basis points in March 2007.

Which tenors are used for Malaysia?

The 10-year and 2-year market indicative yields in BNM's Table 2.5, both at month-end. BNM's daily benchmark page lists a 3-year and a 10-year benchmark but no 2-year, so daily 10-year minus 3-year figures are not the same measure.

Did a flat curve warn of past Malaysian downturns?

Only loosely. The spread fell to 7.2 bp in 2007 before the 2009 contraction, and to 20.3 bp in August 2019 before a weak fourth quarter of 2019. But the 2020 and 2021 contractions came from the pandemic and lockdowns, and the 2022 fourth-quarter dip came with a spread of more than 50 bp.

What does the 2-year yield above the OPR mean?

At end-August 2026 the 2-year MGS yield was 3.239%, 49 bp above the 2.75% OPR. A 2-year yield above the policy rate usually means the market is not expecting cuts over that horizon, though it also contains a term premium that cannot be separated out.

Source

Calculators

Asset growth comparisonAsset growth comparison · MYR

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