Ringgit Rises Most Since 1998, Bonds Gain as Fed Avoids Tapering

Malaysia’s ringgit rallied the most since the 1998 Asian financial crisis and 10-year bond yields sank to a two-month low after the Federal Reserve unexpectedly refrained from cutting stimulus that spurred capital inflows.

The currency climbed 2.6 percent to 3.1519 per dollar as of 4:18 p.m. in Kuala Lumpur, the biggest advance since September 1998, data compiled by Bloomberg show. It reached 3.1463, the strongest since June 18. One-month non-deliverable forwards rose 2.6 percent to 3.1553.

Fed Chairman Ben S. Bernanke said more evidence of a recovery in the world’s largest economy is needed before the central bank starts to pare $85 billion a month of bond purchases, spurring a 1.2 percent gain in the FTSE Bursa Malaysia KLCI Index of shares. The U.S. is Malaysia’s fourth-largest overseas market. Shipments rose in July after a five-month contraction.

“Asian currencies are reacting to the Fed’s non-tapering,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The ringgit is stronger than most of the currencies in the region because it’s more elastic to shocks.”

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, dropped 44 basis points, or 0.44 percentage point, to 10.3 percent, the biggest decline since July 23.

Ten-year government bonds advanced for a 10th day, the longest winning streak since the 3.48 percent notes were sold in March. The yield fell three basis points to 3.73 percent, the lowest since July 15, according to data compiled by Bloomberg.

The cost to protect the nation’s sovereign debt from default for five years plunged nine percentage points yesterday to 111.5, the least in two months, CMA default swaps prices show.

Official data showed yesterday that consumer prices climbed 1.9 percent in August from a year earlier, less than the median estimate in a Bloomberg survey for a 2 percent increase.

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