Bloomberg News

Malaysia Default Swaps Reach Two-Month High on Election Concern

April 03, 2013

The cost of insuring Malaysia’s sovereign debt climbed to the highest level in almost two months on concern upcoming elections will produce a close outcome that could trigger unrest. The ringgit and bonds were steady.

Prime Minister Najib Razak dissolved parliament yesterday, paving the way for polls within 60 days that will determine whether his ruling coalition extends its unbroken hold on power since independence in 1957. The vote may be the “closest in history” and shifting voter demographics and a higher turnout may slightly favor the opposition, according to a research note from Citigroup Inc.

“What the market is less comfortable about is, if there are riots or claims of election fraud, which may lead to more instability,” said Nizam Idris, head of Asian fixed income and foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. “It’s more the issue of how the country will react to the result.”

Five-year credit-default swaps on Malaysian debt rose three basis points, or 0.03 percentage point, to 92 in New York yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That was the highest level since Feb. 11. The contracts 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.

The ringgit traded at 3.0828 per dollar as of 9:26 a.m. in Kuala Lumpur, compared with 3.0835 yesterday, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, declined two basis points to 6.72 percent.

‘Cautiously Optimistic’

The ruling Barisan Nasional coalition will fare better in the upcoming poll compared to the last election in 2008 as it has been engaging young professional voters, many of whom voted against the government previously, Saifuddin Abdullah, deputy minister of higher education, said in a Bloomberg TV interview today with Susan Li. Opposition leader Anwar Ibrahim said today he was “cautiously optimistic” about the election result, in a Bloomberg TV interview with Rishaad Salamat.

The yield on the 3.26 percent government bonds due March 2018 was 3.22 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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