Ringgit volatility poised for longest run of declines since 2012

(June 27): A measure of expected swings in Malaysia’s ringgit headed for a ninth weekly drop, the longest falling streak since 2012, as low borrowing costs in developed nations spur demand for emerging-market assets.

The Federal Reserve signaled last week that U.S. interest rates will stay low for some time after the end of its bond- purchase program. The European Central Bank cut rates to negative on June 5, while the Bank of Japan has been buying about 7 trillion yen ($69 billion) of debt a month since April 2013. Ten-year Malaysian sovereign debt yields 4.06 percent, compared with 0.56 percent for similar-maturity Japanese notes and 2.52 percent for U.S. Treasuries.

“The ringgit’s volatility, like those of other emerging- market assets, is falling because of the accommodative G3 monetary policies,” said Wong Chee Seng, a currency strategist at AmBank Group in Kuala Lumpur. “That gives comfort for investors to go yield-hunting.”

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, slid 40 basis points, or 0.4 percentage point, this week to 4.68 percent as of 10:36 a.m. in Kuala Lumpur, data compiled by Bloomberg show. It fell 15 basis points today and has dropped 1.9 percentage in nine weeks.

The ringgit rose 0.3 percent for the week and 0.2 percent today to 3.2127 per dollar, according to data compiled by Bloomberg. The currency has gained 1.6 percent this quarter.

Global funds increased holdings of Malaysian government and corporate debt by 0.5 percent to 235.9 billion ringgit ($73 billion) in April, the highest level since May 2013, according to the latest available central bank data.

The treasury will sell 1.5 billion ringgit of Islamic government bonds due August 2033 today, according to information published on Bank Negara’s website. Bidding closes at 11:30 a.m. local time.

The yield on Malaysia’s 4.181 percent sovereign bonds due July 2024 fell one basis point this week and was little changed today at 4.06 percent, data compiled by Bloomberg show. The yield has dropped six basis points this quarter.

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