Malaysian Bonds Climb as Global Fund Holdings Reach Record

Malaysia’s five-year bonds rose, driving the yield to a six-week low, as global funds added to their holdings of the nation’s debt amid a rally in the ringgit.

Overseas investors purchased 10.2 billion ringgit ($3.2 billion) of sovereign notes in May, taking total ownership to 150.2 billion ringgit, the highest level in Bloomberg data going back to 2006. That followed a 4.5 billion ringgit drop in April, the biggest since July 2013. The currency is gaining on speculation the central bank will increase interest rates this month for the first time since 2011.

“The rally in Malaysian government bonds has been driven by the fact that offshore has been covering their underweight positions,” said Kumar Rachapudi, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “This is also being helped by the rally in the currency, which enhances the returns for bond holders.”

The yield on the government’s 3.654 percent notes due October 2019 fell one basis point to 3.69 percent in Kuala Lumpur, the lowest level since May 16, data compiled by Bloomberg show. It’s dropped seven basis points, or 0.07 percentage point, in five days.

The ringgit climbed for a fifth day, its longest stretch of gains since the period ended May 9. It advanced 0.1 percent to 3.2045 per dollar and earlier reached a three-week high of 3.2018, data compiled by Bloomberg show. The currency strengthened 1.7 percent in the second quarter, the best performance since September 2012. The next rate decision is due on July 10.

Rate Bets

Overseas investors’ total holdings of Malaysian debt, including government and corporate notes, climbed 5.7 percent in May to a record 249.5 billion ringgit from a month earlier, show latest central bank data issued this week.

Inflows into Malaysian government bonds in May were spurred largely by the ringgit’s gains on speculation Bank Negara will raise the policy rate, Winson Phoon, a Kuala Lumpur-based fixed-income analyst at Maybank Investment Bank Bhd., wrote in a report yesterday.

“If this is true, the relative stickiness of these funds may be low, and could rotate out as the rate hike proposition plays out,” Phoon said.

The government’s 10-year notes climbed for a sixth day. The yield on the 4.181 percent debt maturing July 2024 dropped one basis point to 4.02 percent, the lowest since May 15. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose one basis point to 4.83 percent.

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