Ringgit Volatility Gauge Advances as Bonds Fall Amid 1MDB Probe

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A gauge of volatility in Malaysia’s ringgit rose to a two-month high and government bonds dropped amid a probe involving finances linked to a state investment company.

A task force that includes the police and the central bank is investigating a money trail that allegedly showed funds connected with 1Malaysia Development Bhd. ended up in Prime Minister Najib Razak’s bank accounts, a claim he has denied. The controversy has helped make the ringgit Asia’s worst-performing currency this year as a drop in Brent crude erodes earnings for the oil exporter. Prospects the U.S. will increase interest rates is also weighing on the currency.

“The situation in Malaysia is still uncertain given that the market is still looking for further developments regarding 1MDB,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The other thing we’re watching is oil prices, which have stumbled again.”

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed six basis points to 10.88 percent as of 5:15 p.m. in Kuala Lumpur. It earlier rose to 10.98 percent, the highest since May 8.

A Wall Street Journal report on July 3, citing documents from a government probe, said about $700 million may have moved through government agencies and companies linked to 1MDB before apparently appearing in the prime minister’s personal accounts. A legal letter has been sent to the publication, Najib’s spokesman Tengku Sariffuddin Tengku Ahmad said Wednesday.

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Officials from the task force visited 1MDB’s Kuala Lumpur headquarters on Wednesday and were provided with “a number of documents and materials to aid with the investigations currently taking place,” the state investment company said in a statement.

The task force said Tuesday it had frozen six bank accounts believed linked to the probe, without saying who they belong to. The extra yield investors demand to hold 1MDB’s dollar bonds due in 2023 widened 88 basis points to a record 570, data compiled by Bloomberg show.

The yield on Malaysia’s government bonds due in 2017 rose 11 basis points to 3.31 percent, the biggest increase in more than a month, according to prices from Bursa Malaysia. The cost to insure the nation’s debt using five-year credit-default swaps climbed to 146, a level last reached in January.

The ringgit, which was little changed at 3.8077 a dollar on Wednesday, has declined 8.2 percent this year, according to prices from local banks compiled by Bloomberg. The currency surpassed 3.8 this week, the level at which it was pegged from 1998 to 2005.

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