Ringgit Climbs Most in Three Years, Bonds Gain on Fed Surprise

Malaysia’s ringgit rallied the most in three years and 10-year bond yields sank to a two-month low after the Federal Reserve unexpectedly refrained from cutting stimulus that’s spurred demand for emerging-market assets.

The currency led gains in Asia, climbing 2.1 percent to 3.1662 per dollar as of 10:25 a.m. in Kuala Lumpur, the biggest advance since May 2010, data compiled by Bloomberg show. It reached 3.1584, the strongest since July 11. One-month non-deliverable forwards climbed 2.2 percent to 3.1671.

The Federal Reserve Open Market Committee said it wants to see more evidence of a recovery in the world’s largest economy before starting to taper $85 billion a month of bond purchases, spurring a 1 percent gain in the FTSE Bursa Malaysia KLCI Index (FBMKLCI) of shares. The U.S. is Malaysia’s fourth-largest overseas market, with shipments rising in July after a five-month contraction.

“Asian currencies are reacting to the Fed’s non-tapering,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The ringgit is stronger than most of the currencies in the region because it’s more elastic to shocks.”

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, dropped 31 basis points, or 0.31 percentage point, to 10.44 percent, the biggest decline this month.

Ten-year government bonds advanced for a 10th day, the longest winning streak since the 3.48 percent notes were sold in March. The yield fell three basis points to 3.73 percent, the lowest since July 15, according to data compiled by Bloomberg.

The cost to protect the nation’s sovereign debt from default for five years plunged nine percentage points yesterday to 111.5, the least in two months, CMA default swaps prices show.

Official data showed yesterday that consumer prices climbed 1.9 percent in August from a year earlier, less than the median estimate in a Bloomberg survey for a 2 percent increase.

To contact the reporter on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

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

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