Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

The cost of scandals can be hard to measure. In the case of Malaysia, however, this week offered a good glimpse of just how expensive the high-profile investigation into its state-backed fund 1MDB has become.

Insurance Cost
Credit-default swaps protecting Malaysian government debt against nonpayment have almost doubled over the past 24 months
Sources: Bloomberg; CMA

Malaysia's government raised $1 billion selling 2026 bonds on Wednesday and another $500 million selling notes that mature in 2046. The 10-year debentures were priced at a 135-basis-point premium over similar maturity Treasuries while the 30-year securities were sold at a spread of 145 basis points, according to data compiled by Bloomberg. At least 10 basis points could have been shaved off both of those were it not for fears 1MDB will default on its obligations. In April last year, for example, the sovereign sold 10-year debt at a 115 basis-point premium.

To be fair, Malaysia was able to reduce the amount it paid somewhat. When it initially started marketing the bonds to investors, the 10-year notes were being offered at a spread of about 150 basis points and the 30-year securities at about 165 basis points.

But the stream of negative headlines emanating from 1MDB can't have buoyed investor confidence. The fund is at the center of an international investigation into money laundering and is sparring with some of its creditors. There's been a selloff in all Malaysian government debt, including the nation's dollar bonds due 2025 and 2045, the ones used as benchmarks to price the new notes.

Spreading Pain
The yield premium investors demand to own Malaysia's international bonds has been increasing amid 1MDB's travails
Source: Bloomberg

1MDB has also been blamed for its part in the ringgit's wild ride. The currency, which has appreciated a 10.2 percent against the greenback this year, was the worst performing in Asia last year and second-worst performing in 2014, ahead of the Japanese yen. The yield on Malaysian dollar bonds, meanwhile, averaged 4.18 percent in 2015 versus 3.70 percent in 2014, JPMorgan indexes show. And the cost of protecting sovereign debt against default using credit-default swaps has almost doubled over the past 24 months.

In a world of negative interest rates, investors will still be keen to fund a country comfortably rated investment grade. But the cost of money is tied to confidence, and because of 1MDB, that's not something Malaysia is inspiring these days.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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