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Domestic as well as foreign analysts generally agree that the domestic interest rates have peaked during the second half of 1996. Thus, Normandy foresees better returns for bonds investors. The interest rate trend for Malaysia is likely to be stable with downside potential after the first half of 1997. The current interbank rate (KLIBOR) for l2-month period hovers around 7.40% with average fixed deposits for a 12-month period around 7.20%. Anticipation of a downtrend for the domestic interest rates in the medium-to-long term should deliver attractive returns for bond holders. As mentioned, falling interest rates are positive for the bonds markets. In Malaysia, the bond market is still at its infant stage. There are many areas which need to be done before the local bond market can fully develop. Positive economic fundamentals are expected to support the bond market in the near future. Bondholders are likely to receive more attractive returns. In addition, it is not every year that we see the bulls visiting the stock market. To sum up, bonds offer investors three main components to an investor; Income - predictable and regular income Potential for capital gains - falling interest rates produce capital gains Diversification - There is low correlation between stocks and bonds Investors who want higher returns than the fixed deposits but less market risk than equities should strongly consider the option of investing in bonds. Efforts to educate the market would have to be intensified. All in all, Normandy Research is confident towards the positive development of the Malaysian bond market in a foreseeable future.