Malaysia’s three-year government bonds are having the best week since January as speculation the US will delay paring stimulus beyond 2013 fueled demand for emerging-market assets. The ringgit gained for a third week.
The Federal Reserve shouldn’t begin reducing debt purchases as economic data stopped during the shutdown, Chicago Fed President Charles Evans said yesterday. Congress passed an accord that funds the government through January 15 and suspends the debt limit through February 7. The risk premium on Malaysian bonds will probably fall if Prime Minister Datuk Seri Najib Razak takes fiscal consolidation measures in the October 25 budget, Barclays Plc strategists including Rohit Arora wrote in a note yesterday.
"The probability that tapering will be pushed out to March of next year has increased," said Igor Arsenin, a Barclays strategist in Singapore. "There were some inflows but they started off at the short end of the yield curve just because nobody wants to go out the curve in the current environment."
The yield on the 3.172 per cent notes due July 2016 fell 14 basis points this week and one basis point today to 3.16 per cent as of 9.53am in Kuala Lumpur, according to data compiled by Bloomberg. That’s the biggest five-day drop since the notes were sold in January and the lowest level in four months.
The cost to insure Malaysian government debt using credit default swaps was at an almost four-week low of 108.5, CMA prices show. That’s down from 131.5 at the end of last month.
US policy makers should maintain low interest rates to reduce unemployment even at the risk of temporarily pushing inflation above the Fed’s two per cent goal, Narayana Kocherlakota, president of the Minneapolis Fed, said in a speech yesterday.
The Bloomberg US Dollar Index, which tracks the greenback against 10 of the most-traded global currencies, declined 0.8 per cent during the five-day period, heading for its worst week since September 20. It gained 0.1 per cent today.
"In the wake of this week’s ‘fiscal fudge’ by the US Congress, Fed policy direction will become even more important" for the foreign-exchange market, Credit Agricole SA strategists including New York-based David Keeble wrote in a report today. Tapering will likely be pushed out to January from December, undermining the dollar, they wrote.
The ringgit advanced 0.8 per cent this week to 3.1525 per dollar, according to data compiled by Bloomberg. It reached 3.1413 today, the strongest level since June 18.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined 156 basis points, or 1.56 percentage points, to 8.78 per cent this week and climbed two basis points today.-- Bloomberg