Malaysian Bonds Draw Global Funds as Holdings Climb to Record

Overseas investors raised ownership of Malaysian local-currency debt to a record in May as the ringgit posted its biggest rally in three months.

Holdings, which include government and corporates notes, climbed 5.8 percent to 249.5 billion ringgit ($77.8 billion) from a month earlier, according to data published on the central bank’s website late yesterday.

Malaysia’s sovereign bonds have gained this year as the current-account surplus provides support for the ringgit, which has also strengthened on odds interest rates will rise in 2014. The nation’s 10-year government notes offer a yield of 4.03 percent, compared with 2.53 percent for U.S. Treasuries.

“Inflows of foreign funds in May were driven by the decline in U.S. Treasury yields,” said Nik Mukharriz Muhammad, a Kuala Lumpur-based fixed-income analyst at CIMB Investment Bank Bhd. “The stronger ringgit resulting from expectations of a rate hike also further supported inflows.”

The Bloomberg Malaysia Local Sovereign Index rose 1.2 percent last quarter, adding to the 1.3 percent advance in the previous three months. The ringgit appreciated 1.7 percent for the quarter, the best performance in Southeast Asia after the Philippine peso. It climbed 0.1 percent in June and 1.6 percent in May, data compiled by Bloomberg show.

Rate Outlook

BNP Paribas Investment Partners said in June that the country is better placed to weather a surge in oil prices than regional neighbors as it’s a net exporter of the fuel. Crude climbed 5.6 percent in New York in the past two months amid the escalating conflict in Iraq.

The central bank data showed global ownership of conventional government bonds rose 6.8 percent to 144.7 billion ringgit in May from a month earlier, while holdings of Islamic debt increased 22 percent to 5.4 billion ringgit.

The nation’s currency appreciated 0.1 percent to 3.2080 per dollar as of 10:44 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.1937 on June 9, the highest level since November.

Malaysia had a current-account surplus of 19.8 billion ringgit in the first quarter, widening from 14.8 billion ringgit in the previous three months, official data show.

One-year interest-rate swaps rose 19 basis points, or 0.19 percentage point, last quarter to 3.68 percent, above the central bank’s benchmark rate of 3 percent. The next policy meeting is due July 10.

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