Malaysia Three-Year Bonds Complete Weekly Gain on Rate-Cut Bets

Malaysia’s government bonds rose this week as inflation below one percent raised speculation the central bank will cut interest rates for the first time since 2009.

HSBC Holdings Plc forecasts Bank Negara Malaysia will lower its benchmark 3.25 percent policy rate in the second quarter as economic growth slows, according to a report last month. One-year interest-rate swaps have dropped 20 basis points in 2015 to 3.62 percent. Exports fell the most in more than five years in February, a government report showed Friday, adding pressure on an already dwindling current-account surplus.

“Inflation has surprised on the downside,” Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd., said before the export numbers were issued. “Bank Negara Malaysia now has less of a reason to hike and may be tipping toward a rate cut if the economy runs into headwinds.”

The yield on the 2017 sovereign bonds declined two basis points, or 0.02 percentage point, from March 27 to 3.31 percent in Kuala Lumpur, data compiled by Bloomberg show. The rate dropped for a seventh week, the longest since the debt was sold in 2012, and it was the lowest level since June 2013. The 10-year yield fell three basis points to 3.87 percent.

The ringgit advanced 0.4 percent in the past five days to 3.6693 a dollar and was little changed Friday. The currency lost 2.7 percent in March, the worst performance in Asia, on concern that lower crude prices will cut revenue for the region’s only major oil exporter.

Exports fell 9.7 percent in February from a year earlier, the biggest decline since September 2009 and below the median estimate in a Bloomberg survey for a 1.4 percent contraction, the government report showed. The trade surplus narrowed to 4.52 billion ringgit ($1.2 billion) from a revised 8.96 billion ringgit the previous month. The forecast was for an 8.5 billion ringgit excess.

Consumer prices increased 0.1 percent in February, the slowest pace since November 2009, official data showed last month. The central bank said in March that underlying inflation is likely to remain contained.

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