Malaysian bonds draw global funds as holdings climb to record

Malaysia’s sovereign bonds have gained this year as the current-account surplus provides support for the ringgit. — AFP pic
Malaysia’s sovereign bonds have gained this year as the current-account surplus provides support for the ringgit. — AFP pic

KUALA LUMPUR, July 1 — 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 per cent to RM249.5 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 per cent, compared with 2.53 per cent for US Treasuries.

“Inflows of foreign funds in May were driven by the decline in US 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 per cent last quarter, adding to the 1.3 per cent advance in the previous three months. The ringgit appreciated 1.7 per cent for the quarter, the best performance in Southeast Asia after the Philippine peso. It climbed 0.1 per cent in June and 1.6 per cent 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 neighbours as it’s a net exporter of the fuel. Crude climbed 5.6 per cent 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 per cent to RM144.7 billion in May from a month earlier, while holdings of Islamic debt increased 22 per cent to RM5.4 billion.

The nation’s currency appreciated 0.1 per cent to 3.2080 per dollar as of 10:44 am 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 RM19.8 billion in the first quarter, widening from RM14.8 billion 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 per cent, above the central bank’s benchmark rate of 3 per cent. The next policy meeting is due July 10. — Bloomberg

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