Malaysian Default Swaps Rise on Election Concern; Ringgit Steady

The cost to insure Malaysian bonds against default climbed to a one-week high amid concern the ruling coalition will lose support in an upcoming election. The ringgit was little changed.

Prime Minister Najib Razak, whose administration has embarked on a $444 billion 10-year infrastructure development plan to spur economic growth, saw his approval rating fall to 61 percent in early February from 63 percent at end-December, according to a poll by Merdeka Center for Opinion Research released yesterday. He must dissolve parliament by April 28. Italy’s election results showed no outright winner, triggering renewed concern the region’s sovereign-debt crisis will worsen.

“There are risks that the Malaysian ruling party may lose some ground and for investors, the main question is what this means for ongoing policy continuity,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “The hung outcome of the Italian elections sent risk appetite spinning lower.”

Five-year credit-default swaps on Malaysian debt advanced one basis point to 80 yesterday in New York, the highest since Feb. 18, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. They reached a five-month high of 97 on Feb. 4. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

The ringgit traded at 3.1008 per dollar as of 9:19 a.m. in Kuala Lumpur, compared with yesterday’s close of 3.0998, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, held at 7.30 percent.

Government bonds were little changed. The yield on the 3.418 percent notes due August 2022 was 3.47 percent, according to Bursa Malaysia.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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