KUALA LUMPUR, May 9 — Malaysia’s three-year government bonds declined while interest-rate swaps climbed to the highest level since 2008 after the central bank signalled it might raise interest rates for the first time in three years.
The yield on the 3.394 per cent sovereign notes maturing in March 2017 rose 11 basis points to 3.5 per cent as of 1.09pm in Kuala Lumpur, the highest for a benchmark security of that maturity since August, data compiled by Bloomberg show.
The one-year swap climbed 11 basis points to 3.63 per cent, a level last seen in October 2008, signalling investors predict at least a 50-basis-point increase in the key rate. The contracts were at 3.25 per cent six months ago.
The central bank said in a statement yesterday that it might need to adjust the degree of monetary policy accommodation to avoid a broader build-up in financial and economic imbalances. It kept its overnight policy rate at 3 per cent for the 18th straight meeting, as expected by 18 of 20 economists in a Bloomberg News survey.
“The rate swaps are rising on bets that Bank Negara could be raising interest rates soon,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd in Singapore. “Our house view is that the central bank may hike borrowing costs 25 to 50 basis points in the second half.”
One-month non-deliverable forwards gained 0.8 per cent yesterday following the central bank’s comments, which came after spot-market trading had closed. The contracts touched 3.2230 per dollar today, the strongest since April 10, data compiled by Bloomberg show, before falling 0.1 per cent to 3.2313, trimming the weekly advance to 1.3 per cent.
The ringgit appreciated 0.4 per cent today to a one-month high of 3.2243 per dollar and gained 1.3 per cent for the week, the biggest five-day rally since April 11.
Consumer prices
Bank Negara has kept borrowing costs unchanged since May 2011, even as consumer prices surged 3.5 per cent in March and February, the fastest pace in more than two years.
The central bank “sent a strong signal that rate hikes are on the cards in view of the firmer growth prospects, above-average inflation, and the signs of continued build-up of financial imbalances”, Julia Goh, an economist at CIMB Investment Bank Bhd in Kuala Lumpur, wrote in a research report yesterday. She revised her year-end policy rate target to 3.25 per cent from 3 per cent.
One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, decreased five basis points, or 0.05 of a percentage point, to 5.98 per cent today and dropped 34 basis points this week.
Malaysia 10-year government bonds fell, with the yield on the 4.181 per cent July 2024 securities climbing 8 basis points to 4.07 per cent, according to data compiled by Bloomberg. — Bloomberg
