Malaysian Bonds Slide on Fed Taper Prospects; Ringgit Advances

The yield on Malaysia’s 10-year government bonds rose the most in almost six weeks on signs the Federal Reserve will reduce stimulus that spurred fund flows to emerging markets. The ringgit strengthened.

The yield on 10-year U.S. Treasuries reached the highest in almost two years yesterday after better-than-expected jobs data on July 5 bolstered the case for the Fed to scale back $85 billion of monthly debt buying. Global funds hold 33 percent of Malaysia’s sovereign bonds, compared with 19 percent in Thailand, official data show.

“The biggest driver is the move in Treasury markets,” said Rahul Bajoria, an economist at Barclays Plc in Singapore. “Essentially, it’s a reaction to the concern that the Fed will taper soon.”

The yield on the 3.48 percent bonds due March 2023 advanced 13 basis points, or 0.13 percentage point, to 3.67 percent as of 4:07 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. That’s the biggest increase since May 29. The yield on 10-year Treasuries reached 2.75 percent yesterday, the highest since Aug. 1, 2011.

Fed Chairman Ben S. Bernanke said June 19 the central bank may reduce its bond buying this year and end it in 2014 if the U.S. economy performs in line with its projections. Minutes of the Fed’s meeting last month are due tomorrow.

Bank Negara Malaysia will maintain its benchmark overnight policy rate at 3 percent on July 11, according to all 16 economists in a Bloomberg survey. The central bank has kept borrowing costs on hold since May 2011.

The ringgit advanced 0.7 percent to 3.1881 per dollar, according to data compiled by Bloomberg, after dropping 0.8 percent in the previous two days. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 38 basis points to 8.72 percent.

“We’re seeing a bit of retracement following the non-farm payrolls inspired rally in the U.S. dollar,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The market, while still believing the U.S. dollar will strengthen, is not really willing to run with it with any strong conviction.”

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