Trade balance, growth lift weight off Malaysian bonds

KUALA LUMPUR, May 28 — The cost of insuring Malaysian government bonds fell for a fifth day as a measure of exchange-rate risk showed confidence is rising after the trade balance and economic growth improved.

Five-year credit-default swaps declined two basis points to 89.5 in New York yesterday, the lowest level since June 4, CMA data show. One-month implied volatility in the ringgit, a gauge of expected moves in the exchange rate used to price options, dropped as much as 35 basis points to a 16-month low of 5.27 per cent yesterday. It rose nine basis points today to 5.44 per cent, according to data compiled by Bloomberg.

A preliminary reading of manufacturing in China, Malaysia’s second-biggest export market, climbed to a five-month high this month, a May 22 report from HSBC Holdings Plc and Markit Economics showed. The index still held below the dividing line of 50 that signals contraction. Malaysia’s trade surplus beat economists’ forecasts in March, while overseas shipments rose for a ninth month, the latest figures available show.

The decline in Malaysian bond risk “reflects a low volatility environment in financial markets”, said Mirza Baig, BNP Paribas SA’s Singapore-based head of Asia foreign-exchange and interest-rate strategy. “People have taken heart that trade balances have improved and there’s a sense that the Chinese economy is not going to hard-land.”

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Malaysia’s gross domestic product increased 6.2 per cent in the first quarter from a year earlier, the fastest pace in more than a year and exceeding the median estimate of economists for a 5.7 per cent gain, a May 16 report showed.

Ringgit, bonds

The ringgit retreated 0.1 per cent to 3.2215 per dollar as of 10.26am in Kuala Lumpur, according to data compiled by Bloomberg. It appreciated 1.4 per cent in May, the third-best performance in Asia after the Indian rupee and Philippine peso.

Malaysia’s local-currency sovereign debt headed for a fifth monthly rally, according to an index compiled by Bloomberg. The gauge climbed 0.1 per cent to 116.79 and reached 116.95 on May 8, the highest in data going back to 2010. It rose 2 per cent this year. The yield on 4.181 per cent notes due July 2024 was little changed at 4.04 per cent, data compiled by Bloomberg show. It has declined five basis points since April 30. — Bloomberg

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