Oil price bounce boosts ringgit; 1MDB woes push up credit costs

[KUALA LUMPUR] Malaysia's ringgit snapped a three-day loss as Brent crude stabilized following a selloff on Monday sparked by the failure among oil producers to cap production.

The currency rose the most in more than two weeks as Brent recovered to near US$43 a barrel, quelling concern that the oil exporter's revenue will deteriorate after prices collapsed as much as 7 per cent. The weekend talks in Doha ended without an agreement to freeze output to address a global supply glut, which pushed the commodity to a 12-year low in January.

The ringgit strengthened 0.7 per cent to 3.9012 per dollar as of 10 am in Kuala Lumpur, after falling 0.6 per cent on Monday, prices from local banks compiled by Bloomberg show. It's the best performing Asian emerging-market currency this year with a 10 per cent advance.

While sentiment for the ringgit improved, the cost to insure the nation's bonds increased in New York to the highest this month. 1Malaysia Development Bhd failed to make a payment of more than US$1 billion in connection with a loan made last year by Abu Dhabi's sovereign wealth fund, according to a London stock exchange filing.

That means 1MDB and Malaysia's finance ministry "are in default," Abu Dhabi's International Petroleum Investment Co said. The ministry said in a statement it "will continue to honor all of its outstanding commitments." Five-year credit-default swaps climbed 11 basis points to 163, according to CMA prices. The contracts rose to 247 in September, the highest in more than six years. ING Groep NV said fair value for the swaps is around 125.

"Malaysian CDS was one of the financial assets that re-priced too much in 2015, in our view," Singapore-based Asia research head Tim Condon wrote in a research note.

Malaysia's benchmark stock index bucked a regional rally and 10-year government bonds rose. The FTSE Bursa Malaysia KLCI Index dropped for a second day, headed for its lowest close in more than two weeks. The yield on notes due in 2025 declined three basis points to 3.76 per cent, Bursa Malaysia prices show.

BLOOMBERG