Malaysia Bonds Retreat as Currency Forwards Rule Damps Sentiment

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Malaysia’s 10-year government bonds fell, driving the yield to a 15-month high, as the central bank’s move to discourage currency speculation hurt sentiment toward the nation’s assets.

The ringgit fell as much as 0.5 percent to the lowest in more than 13 months after Bank Negara Malaysia warned foreign banks this month against using offshore forwards to bet against the currency. A three-day rally in Brent crude offered limited support for the ringgit even as it boosted prospects for Malaysia’s oil-export earnings.

“The Malaysian ringgit’s in a world of its own simply because of the currency regulations that Bank Negara Malaysia’s coming out with,” said Stephen Innes, a senior trader at Oanda Asia Pacific Pte Ltd. in Singapore. “Right now, people are still looking for the exits on the bond market simply because there’s a growing fear that they just can’t hedge their risk.”

The 10-year yield rose three basis points to end at 4.40 percent, the highest for a similar-maturity benchmark since August 2015. The ringgit reached 4.4420 per dollar, the weakest since Oct. 2, 2015, before trading 0.1 percent higher at 4.4175 as of 5:44 p.m. in Kuala Lumpur. One-month non-deliverable forwards rose 0.1 percent to 4.4250.

Bank Negara said last week there will be continued restrictions for avenues that could be used to support speculative activities in the currency market. The move came after one-month forwards plunged to a record low of 4.5848 on Nov. 11 amid an emerging-market rout sparked by Donald Trump’s surprise victory in the U.S. presidential election.

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