Malaysia Default Risk at 2-Month High on China Slowdown Concern

Photographer: Goh Seng Chong/Bloomberg

The Petronas Twin Towers (KLCC) are illuminated at night in Kuala Lumpur. Close

The Petronas Twin Towers (KLCC) are illuminated at night in Kuala Lumpur.

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Photographer: Goh Seng Chong/Bloomberg

The Petronas Twin Towers (KLCC) are illuminated at night in Kuala Lumpur.

The cost of insuring Malaysia’s sovereign debt climbed to a two-month high on concern growth in China, the nation’s biggest export market, is slowing.

Five-year credit-default swaps rose two basis points, or 0.02 percentage point, to 116 in New York yesterday, according to data provider CMA. That’s the highest since Nov. 13. In Thailand, the contracts climbed to a four-month high and in the Philippines they reached a level not seen since October.

China’s broadest measure of new credit probably dropped by a record in the second half amid a crackdown on speculative lending, based on published figures and the median estimates of economists before data due in coming days. U.S. Treasury yields touched the highest level since July 2011 on Jan. 2 as the Federal Reserve pares stimulus that’s driven inflows to developing nations.

“The risks of emerging-market Asia are being priced in vis-a-vis U.S. Treasury returns,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “The desperation for seeking high yields is diminishing as U.S. yields increase. There may be a partial pricing in of China risks.”

Credit default swaps 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.

Rising Yields

Borrowing costs in Malaysia are also rising. The yield on the 3.48 percent sovereign notes due March 2023 climbed to 4.19 percent on Jan. 6, the highest since the debt was sold in March last year, according to data compiled by Bloomberg. They were paying 4.16 percent as of 12:06 p.m. in Kuala Lumpur today.

Ten-year U.S. Treasury rates were at 2.95 percent after touching the 2011 high of 3.05 percent Jan. 2.

Malaysia’s overseas shipments grew 6.7 percent in November from a year earlier, below the 10.3 percent median estimate of economists in a Bloomberg survey and a 9.6 percent increase the previous month, official figures showed today.

Export growth in China, the world’s second-biggest economy, probably slowed to a three-month low of 5 percent in December, while the trade surplus narrowed to $32.2 billion from $33.8 billion the previous month, according to the median estimates of economists in Bloomberg surveys before Jan. 10 data.

China’s aggregate financing was 7.1 trillion yuan ($1.2 trillion) in the second half of last year, the figures may show. That would be about 931 billion yuan less than in the July-to-December period of 2012, the largest drop in data going back to 2002.

The ringgit gained 0.1 percent today to 3.2800 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The currency has lost 1.4 percent over the past month, falling along with eight other of Asia’s most-active currencies.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined one basis point to 7.61 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: Amit Prakash at aprakash1@bloomberg.net

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