KUALA LUMPUR: Malaysia’s three-year sovereign bonds headed for their best week since June as the US government closure spurred speculation the Federal Reserve may delay plans to trim stimulus that has fuelled emerging-market inflows.
The US Treasury warned in a report yesterday that a possible default triggered by Congress failing to raise the US$16.7 trillion federal debt limit could have catastrophic consequences lasting decades.
Malaysia cut fuel subsidies last month and Prime Minister Najib Razak said he would announce more steps in the October 25 budget to address the fiscal deficit.
“The US government shutdown has had an impact on the timing of tapering,” said Vivek Rajpal, a Singapore-based strategist at Nomura Holdings Inc.
“Some recent actions in Malaysia such as the fuel price hike suggest the authorities are worried about the fiscal deficit, and hence the market is optimistic that they will be able to take action.”
The yield on the 3.172 per cent notes due July 2016 declined eight basis points, or 0.08 percentage point, this week to 3.31 per cent as of 10.23 am in Kuala Lumpur, according to data compiled by Bloomberg. That’s the biggest five-day drop since the period ended June 7. The rate was steady yesterday.
The Federal Reserve unexpectedly refrained from reducing stimulus last month, and Atlanta Fed President Dennis Lockhart said on Thursday, the shortage of economic data due to the government shutdown “would tend to make me somewhat more cautious” about reducing the monthly pace of bond purchases.
Malaysia’s export growth accelerated to a 15-month high of 4.7 per cent in August, while the trade surplus widened to RM5.1 billion (US$1.6 billion) from RM2.9 billion the previous month, according to the median estimates in Bloomberg surveys of economists before data due at 12.01 pm local time yesterday.
Prime Minister Najib increased prices of gasoline and diesel on September 3 to rein in the government’s budget shortfall. The move will help save about RM1.1 billion this year and RM3.3 billion annually in the future by reducing state subsidies, he said.
The ringgit strengthened one per cent this week to 3.1990 per dollar, according to data compiled by Bloomberg. The currency fell 0.1 per cent yesterday.
One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 53 basis points this week and four basis points today to 10.77 per cent.
The ringgit has room to strengthen due to improving growth expectations in China in the near term and because of Bank Negara Malaysia’s shift to “a slight hawkish bias”, Citigroup Inc strategists including Siddharth Mathur wrote in a note on Thursday. — Bloomberg