FTSE Russell said on Monday that it would review Malaysia's market accessibility level in its World Government Bond Index (WGBI) due to concerns about market liquidity.

Malaysia's currency and bonds weakened as investors worried about the prospect of its debt being removed from the index. Yields on Malaysia's five-year benchmark bond gained more than 10 basis points, while those on three-year debt rose by more than 4 basis points.

Malaysia, currently assigned a '2' and included in the WGBI since 2004, was being considered for a potential downgrade to '1', making it ineligible for inclusion, FTSE said.

Foreign investors have been reducing their Malaysian government bond holdings since late 2016 and held $37 billion as of late March 2019, Morgan Stanley said.

Investors in the JP Morgan Government Bond Index-Emerging Markets indices hold around half of the market, while global aggregate investors about $6 billion, Japanese investors $5 billion and Norway $2 billion, Morgan Stanley added.

"Malaysia could be out of the index over a few months should it be downgraded," Morgan Stanley said, adding that its weight in the index was 0.39 percent as of March 2019.

Malaysia's ringgit weakened slightly to 4.135 per dollar, the lowest since Jan. 25, having lost 0.6 percent in the previous session.

FTSE Russell also said Israel now met its market accessibility level, as well as other criteria, putting it in line for potential inclusion in a September review.

Onshore China, currently assigned a '1' was being considered for a potential upgrade to a market accessibility level of '2', the required minimum for inclusion in the index, it added.