Malaysia Bonds, Ringgit Drop This Week on Fed Tapering Prospects

Malaysia’s 10-year government bonds fell for a third week and the ringgit declined as signs of a U.S. recovery reinforced speculation of a reduction in stimulus that has spurred flows into emerging markets.

New home sales and durable goods orders in the world’s largest economy beat economists’ estimates in June, reports showed this week, ahead of a July 30-31 Federal Reserve meeting which may yield clues on the future pace of debt purchases. Global funds held 33 percent of Malaysian sovereign notes in May, the highest proportion among Southeast Asia’s biggest economies, and Deutsche Bank AG said yesterday this may render the nation’s securities vulnerable to a global sell-off.

“The whole market has been hooked on the QE tapering theme,” said Choong Yin Pheng, a senior manager for fixed income and economic research at Hong Leong Bank Bhd. in Kuala Lumpur. “This will continue to be the theme going forward.”

The yield on the 3.48 percent notes due March 2023 climbed three basis points this week to 3.86 percent as of 4:30 p.m. in Kuala Lumpur, taking this month’s advance to 23 basis points, according to data compiled by Bloomberg. The rate was little changed today.

The ringgit declined 0.4 percent from a week ago and 0.3 percent today to 3.2065 per dollar, data compiled by Bloomberg show. It earlier reached 3.2126, the lowest level since July 8. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 21 basis points, or 0.21 percentage point, this week to 7.71 percent. It was up 42 basis points today.

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