Malaysia's bond bids fewest since 2014 as debt shunned on Fed

[KUALA LUMPUR] A sale of ringgit bonds drew the fewest orders since 2014 as rising odds for a US interest-rate increase and weakness in Malaysia's currency sapped demand.

The government auctioned 4 billion ringgit (S$1.34 million) of five-year notes on Monday and got bids for 1.42 times the offered amount, the least since December 2014, central bank and Bloomberg-compiled data show. Federal Reserve Chair Janet Yellen said on Friday that higher US rates may be warranted in the next few months, spurring a selloff in emerging-market currencies and bonds.

Malaysia's ringgit has slumped the most in Asia this month on concern tighter US monetary policy will spur outflows just as the nation grapples with a scandal surrounding state investment fund 1Malaysia Development Bhd. An increase in debt supply also isn't helping.

"The market turns vigilant and bidders shy away due to dollar strength on the back of Yellen's hawkish-bias comment," said Winson Phoon, a fixed-income analyst at Maybank Investment Bank Bhd in Kuala Lumpur.

"Recent government bond supply also added pressure to the curve." Malaysia's ringgit fell for the first time in four days and was down 0.9 per cent at 4.1185 per dollar as of 2:15 pm in Kuala Lumpur, prices from local banks compiled by Bloomberg show. It has declined 5.2 per cent in May.

Existing bonds dropped, with the five-year yield rising seven basis points to 3.51 per cent, stock exchange prices show. That's the biggest increase since late April.

The notes sold Monday were priced at an average yield of 3.62 per cent. The government has sold 10.5 billion ringgit of debt in May, the most for a month this year.

Mr Phoon, who doesn't have a forecast for the five-year bonds, predicts the 10-year yield will rise to 4 per cent by the end of June, from 3.94 per cent currently.

BLOOMBERG