Malaysian Bonds, Ringgit Set for Weekly Drops Amid U.S. Recovery

Malaysia’s 10-year bonds fell for a third week and the ringgit weakened as signs the U.S. recovery is gaining traction spurred speculation the Federal Reserve will rein in stimulus that boosted demand for emerging-market assets.

New home sales and durable goods orders in the world’s largest economy beat economists’ estimates in June, reports showed this week, ahead of a July 30-31 Fed meeting that may yield clues on the future pace of debt purchases. Global funds held 33 percent of Malaysian sovereign notes in May, the highest proportion among Southeast Asia’s biggest economies, and Deutsche Bank AG said yesterday this may render the nation’s securities vulnerable to a global sell-off.

“The whole market has been hooked on the QE tapering theme,” said Choong Yin Pheng, a senior manager for fixed income and economic research at Hong Leong Bank Bhd. in Kuala Lumpur. “This will continue to be the theme going forward.”

The yield on the 3.48 percent notes due March 2023 climbed three basis points this week to 3.86 percent as of 10:54 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The rate increased one basis point, or 0.01 percentage point, today.

The ringgit declined 0.3 percent from a week ago and 0.1 percent today to 3.2006 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 22 basis points this week and 43 basis points today to 7.72 percent.

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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