Ringgit Declines Most in Four Months, Bonds Drop on Fed Risk

Malaysia’s ringgit dropped by the most in four months and bonds fell as concern the Federal Reserve will pare its stimulus reduced demand for emerging-market assets.

The ringgit declined 1 percent to 3.0751 per dollar as of 4:20 p.m. in Kuala Lumpur, the biggest loss since Jan. 28, according to data compiled by Bloomberg. It reached 3.0768, the weakest level since April 4. The yield on the 3.26 percent government notes due March 2018 rose nine basis points to 3.27 percent. The rate climbed 12 basis points in May.

U.S. data yesterday showed consumer confidence rose to the highest in more than five years, raising speculation a recovery in the world’s largest economy is gathering steam. Fed Chairman Ben S. Bernanke said last week the central bank may cut back its bond-buying program if there are signs of a sustainable improvement. Reports this month showed Malaysia’s factory production and exports contracted in March, while first-quarter growth was the slowest since the period ended September 2009.

“The better U.S. data is pushing the U.S. dollar higher because it’s increasing expectations the Fed may start to taper its bond purchases,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore.

The ringgit is under pressure because of the risk overseas investors will pull funds from the nation’s bonds. Government notes returned 0.5 percent this month, the second-best performance among 10 Asian debt indexes compiled by HSBC Holdings Plc. The yield on 10-year U.S. Treasuries rose three basis points to 2.19 percent, the highest since April 2012.

US Data

“There was another set of strong U.S. data and that added to the view the Fed will taper its quantitative easing,” said Nizam Idris, head of currency strategy in Singapore at Macquarie Group Ltd. “U.S. yields have gone through the roof as well.”

The ringgit lost 1 percent in May and is set for its worst month since January. One-month non-deliverable forwards dropped 1.2 percent to 3.0835 per dollar, the lowest level since April 5, data compiled by Bloomberg show. The contracts traded 0.2 percent weaker than the spot rate.

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