Malaysian Ringgit Slides to Lowest in Two Years; Bonds Rally

By David Yong

Nov. 13 (Bloomberg) -- Malaysia's ringgit fell to the lowest in almost two years on speculation the global credit- market crisis will deepen, prompting investors to stay away from emerging-market assets. Bonds rallied.

The currency slid for a third day as stocks in Australia, Japan and South Korea slumped, tracking losses in U.S. equities. Shares fell on U.S. Treasury Secretary Henry Paulson's plan to use the second half of a $700 billion financial rescue package to help relieve pressures on consumer credit, rather than buy devalued mortgage assets. A report showed U.K. unemployment claims rose to the highest since March 2001.

``Market participants are likely to dine on burnt toast as increasing risk concerns are likely to deliver new territory moves for currencies,'' said David Croy, a strategist in Wellington at ANZ Investment Bank. ``Risk aversion is on the rise'' on worries over the unraveling of economic support packages, he said by phone today.

The ringgit traded at 3.5999 per dollar as of 11:07 a.m. in Kuala Lumpur versus 3.5935 late yesterday, according to data compiled by Bloomberg. It fell as much as 0.6 percent to 3.6163, the weakest since December 2006.

Yields on emerging-market debt are 6.53 percentage points higher than yields on U.S. Treasuries, according to the JPMorgan EMBI+ Index. The risk premium rose 61 basis points yesterday to near a two-week high. A basis point is 0.01 percentage point.

Sliding prices of crude oil and palm oil, which together account for 15 percent of Malaysia's exports have also helped drag the ringgit lower in recent months. The currency has slid about 10 percent since crude oil reached a record $147.27 per barrel on July 11. Crude costs dropped some 60 percent in that time and palm oil more than halved.

Bonds Rise

Three-year notes rose for a third day after Bank Negara Malaysia said it has the flexibility to cut interest rates because inflation in Southeast Asia's third-largest economy has peaked, state-run Bernama news agency reported yesterday.

The yield on the 3.833 percent note due in September 2011 fell 21 basis points to 3.44 percent, the lowest in six months, according to Bursa Malaysia Bhd. The price jumped for a third day, gaining 0.55 or 5.5 ringgit per 1,000 ringgit face amount, to 101.05.

Malaysia's inflation rate fell to 8.2 percent in September from a 26-year high of 8.5 percent the previous month. The central bank left its overnight policy rate at 3.5 percent on Oct. 25 and next meets to set borrowing costs on Nov. 24.

The government will today auction 3 billion ringgit ($833 million) of notes maturing in April 2014. Bidding closes at 11:30 a.m. in Kuala Lumpur. They yielded 3.73 percent in pre- auction, according to broker Amanah Butler Sdn.

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