Malaysian Default Swaps Advance to Four-Year High Amid Outflows

The cost to insure Malaysian bonds from default rose to the highest level in almost four years as outflows and the yuan devaluation weighed on the ringgit.

Five-year sovereign credit-default swaps increased five basis points in New York on Wednesday to 168, the highest since October 2011, CMA prices show. The swaps have increased 44 basis points in the last three weeks.

China’s surprise devaluation of the yuan weakened the ringgit beyond 4 a dollar for the first time since 1998 on Wednesday as investors pulled funds amid a slump in oil and a scandal involving Prime Minister Najib Razak. The Malaysian currency dropped 13 percent this year, the most in Asia.

“The yuan devaluation and the spillover effect on commodities, namely oil, as well as the competitive challenge for the ringgit could be a factor,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “There’s a risk the yuan could depreciate more and this will further weigh on the ringgit.”

Foreign holdings of Malaysian government and corporate debt declined 2.4 percent in July to 206.8 billion ringgit ($51 billion), the least since August 2012, official data released last week show. Overseas investors have pulled 11.7 billion ringgit from the nation’s stocks this year through July, the most since 2008.

Brent crude prices that have more than halved from their 2014 peak are hurting Malaysia’s revenue as a net oil exporter. A government report on Thursday may show the Southeast Asian nation’s second-quarter economic growth slowed to 4.5 percent, from 5.6 percent in the previous three months, according to the median estimate in a Bloomberg survey. That would be the slowest pace since the first quarter of 2013.

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