Malaysia's Ringgit Falls on Arrests, Lehman Crisis; Bonds Gain

By David Yong

Sept. 15 (Bloomberg) -- Malaysia's ringgit dropped on speculation domestic political tension will escalate and global financial turmoil will deter investors from buying regional assets. Bonds advanced.

The government on Sept. 13 ordered the arrest of an opposition lawmaker, a political blogger and a local newspaper reporter as racial tensions flared. The Kuala Lumpur Composite Index of shares tumbled 1.3 percent as Lehman Brothers Holdings Inc. prepared a bankruptcy filing after Barclays Plc and Bank of America Corp. pulled out from buying the U.S. securities firm.

``Offshore funds are not going to be enticed, they will probably wait for lower levels with the market turmoil in the backdrop,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. ``Political risks have risen a few notches and that will likely exert pressure on the ringgit market,''

The ringgit fell 0.1 percent to 3.4475 per dollar as of 11:38 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency has slumped 5.1 percent in the past three months, Southeast Asia's second-worst performer.

Last week's arrests, under a law allowing detention without trial, came as Opposition Leader Anwar Ibrahim seeks to persuade government-aligned lawmakers to defect to him, aiming to topple Prime Minister Abdullah Ahmad Badawi's government as early as this week. Anwar needs at least 30 of 222 lawmakers from Abdullah's coalition to control parliament.

Bonds Gain

The government released the reporter after a 20-hour detention. The arrests may only have a short-term impact on the economy, Second Finance Minister Nor Mohamed Yakcop said, according to a Sept. 13 report from state news agency Bernama.

Ten-year notes advanced for a third day, pushing yields to near the lowest in three weeks, as the government sold more debt to private investors to avoid flooding the market.

The yield on the 4.24 percent note maturing in February 2018 fell 10 basis points to 4.68 percent, according to Bursa Malaysia Bhd. The price jumped 0.7, or 7 ringgit per 1,000 ringgit face amount, to 96.65. A basis point is 0.01 percentage point.

The government today sold 2 billion ringgit ($580 million) of September 2028 bonds in a private sale, without disclosing the buyer or yield. It sold the same securities via an auction at an average yield of 5.248 percent on Sept. 12.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.