April 4 (Bloomberg) -- Malaysia’s ringgit rose to a two-month high on speculation fund inflows will quicken in the run-up to national elections. Government bonds were steady.
The currency erased the bulk of the day’s gains after the Bank of Japan doubled its monthly bond purchases in a bid to overcome deflation, a move that bolstered demand for dollars, according to Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. The Dollar Index, which tracks the greenback against the currencies of six major trading partners, rose 0.7 percent.
Prime Minister Najib Razak dissolved the legislature yesterday, paving the way for polls within 60 days that will determine whether his ruling coalition extends its unbroken hold on power since independence in 1957. The benchmark FTSE Bursa Malaysia KLCI Index of shares advanced as much as 0.9 percent to a record before paring gains.
“Elections are probably going to be held before the end of April and we expect to see funds coming back,” said Wee-Khoon Chong, a rates strategist in Hong Kong at Societe Generale SA. “The risk-reward is still favoring the incumbent to continue another term.”
The ringgit climbed 0.1 percent to 3.0805 per dollar as of 4:51 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency gained for a sixth day, the longest winning streak since Jan. 15, and touched 3.0697, the strongest level since Jan. 30. One-month implied volatility, a measure of expected moves in exchange rates used to price options, declined two basis points to 6.71 percent.
Foreigners pulled 10.7 billion ringgit ($3.47 billion) from Malaysian bonds in February, the most since September 2011, central bank data show. Domestic institutions sold 2.4 billion ringgit more Malaysian stocks than they bought in March, while local retail investors disposed of a record 1.3 billion ringgit of shares, according to Credit Suisse Group AG.
Five-year credit-default swaps on the nation’s debt have climbed 11 basis points, or 0.11 percentage point, this year to 89 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. 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.
“What the market is less comfortable about is, if there are riots or claims of election fraud, it may lead to more instability,” said Nizam Idris, head of Asian fixed income and foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. “It’s more the issue of how the country will react to the result.”
Najib, who has embarked on a $444 billion, 10-year infrastructure development plan, is seeking to improve his coalition’s performance after it recorded its narrowest win ever in the last election in 2008. This year’s vote may be the “closest in history,” according to a research note from Citigroup Inc.
The ruling alliance will fare better this year because it has boosted efforts to win younger voters, Saifuddin Abdullah, deputy minister of higher education, said in a Bloomberg TV interview today with Susan Li. Opposition leader Anwar Ibrahim said today he was “cautiously optimistic” about the election result, in a Bloomberg TV interview with Rishaad Salamat.
The yield on the 3.26 percent government bonds due March 2018 was little changed at 3.22 percent, according to data compiled by Bloomberg.
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