Malaysia Default Swaps Rise on Election Concern; Ringgit Weakens

The cost of insuring Malaysia’s sovereign debt against default was set for the first weekly increase in more than a month and the ringgit fell on concern the government will lose support in upcoming elections.

The opposition coalition will win the next polls with a parliamentary majority of more than 10 seats and control at least six of the nation’s 13 states, leader Anwar Ibrahim said in a March 8 interview. Prime Minister Najib Razak, who must dissolve parliament by April 28, saw his approval rating drop to 61 percent in February, the lowest since August 2011, from 63 percent at the end of December, according to a survey from the Merdeka Center for Opinion Research released Feb. 26. Najib has embarked on a $444 billion, 10-year economic development plan.

“There was speculation early in the week that parliament was dissolved,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia. “The outcome of the polls is also a big question mark.”

Five-year credit-default swaps on Malaysian debt climbed five basis points this week to 78 yesterday in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. They increased one basis point yesterday. 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 weakened 0.3 percent from its March 8 close to 3.1143 per dollar as of 9:53 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose three basis points, or 0.03 percentage point, to 6.68 percent. The currency strengthened 0.2 percent today.

Government bonds were steady this week and today. The yield on the 3.26 percent notes due March 2018 held at 3.24 percent, according to data compiled by Bloomberg.

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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