Bank Ne­gara may ex­pand short-sell­ing of govt bonds

New Straits Times - - Business -

KUALA LUMPUR: Malaysia is con­sid­er­ing eas­ing rules on the short-sell­ing of gov­ern­ment bonds to deepen do­mes­tic fi­nan­cial mar­kets and re­vive in­ter­est in its debt.

Bank Ne­gara Malaysia would al­low com­pa­nies and in­sur­ers to short sell sov­er­eign bonds to help them man­age their in­ter­e­strate ex­po­sure and gen­er­ate more trad­ing vol­ume, said as­sis­tant gov­er­nor Adnan Zay­lani Mo­hamad Zahid in an in­ter­view re­cently.

The central bank was still “pro­vid­ing liq­uid­ity” to the cur­rency market af­ter mea­sures last year to dis­cour­age spec­u­la­tors limited ac­tiv­ity in the ring­git, he said.

Pol­i­cy­mak­ers are seek­ing new ways to de­velop Malaysia’s mar­kets and bring in funds af­ter some in­vestors fled in the wake of a crack­down on trad­ing of off­shore non-de­liv­er­able ring­git for­wards in Novem­ber.

Global funds have pulled more than RM35 bil­lion from Malaysian sov­er­eign bonds in the four months through Fe­bru­ary, the long­est stretch of out­flows since 2014, while adding to hold­ings of other regional mar­kets.

The move to al­low cor­po­rates and in­sur­ers to short-sell gov­ern­ment debt would boost liq­uid­ity, which “also ben­e­fits for­eign in­vestors who op­er­ate in the on­shore bond market”, said Adnan.

“We’re hop­ing to build liq­uid­ity in the on­shore market, and by also un­der­tak­ing fur­ther lib­er­al­i­sa­tion of the on­shore market, we will go, to some ex­tent, in that di­rec­tion.”

The central bank is also plan­ning to re­vise reg­u­la­tions to make it eas­ier for small and medium com­pa­nies to hedge.

The ring­git has re­bounded from a 1998 low and reached a four-month high on Mon­day. It has climbed 1.6 per cent this year to out­per­form regional peers, in­clud­ing the Philip­pine peso. It trails other Asian cur­ren­cies in­clud­ing the baht, the ru­pee and the won.

Adnan said pol­i­cy­mak­ers were not con­cerned as “the ring­git market is still ad­just­ing” and its sta­bil­i­sa­tion would oc­cur within the three- to six-month time frame author­i­ties had ex­pected for its re­cent mea­sures to yield re­sults.

“We are pro­vid­ing liq­uid­ity quite reg­u­larly. That’s prob­a­bly go­ing to be the case un­til the market sta­bilises. It looks like the ring­git is more sta­ble. Some of the market in­di­ca­tors have im­proved so, as we go for­ward, Bank Ne­gara can take a step back even­tu­ally.”

Bank Ne­gara has taken steps to pro­vide greater hedg­ing flex­i­bil­ity in the on­shore cur­rency market and pledged to con­tinue de­vel­op­ing the market.

Ex­change rate volatil­ity has eased with the av­er­age in­tra­day move­ment fall­ing to about 53 points in Jan­uary from 82 points in De­cem­ber, ac­cord­ing to the na­tion’s Fi­nan­cial Mar­kets Com­mit­tee.

The bid/ask spread on Malaysian bonds had nar­rowed to 20 sen to 50 sen, from a peak of RM2 af­ter the United States elec­tion, said the com­mit­tee.

The yield on 10-year Malaysian notes dropped 14 ba­sis points this year to 4.13 per cent, com­pared with an 87-ba­sis point de­cline in sim­i­lar-ma­tu­rity In­done­sian debt.

The central bank said this month non-res­i­dent hold­ings in the bond market were grad­u­ally de­clin­ing and were at 28.7 per cent of the to­tal as of end-Fe­bru­ary, from a 2016 peak of 34.7 per cent.

For­eign own­er­ship would prob­a­bly com­prise more of long-term hold­ers from now, said Adnan.

“We ex­pect the bond market to show more sta­bil­ity and the for­eign ex­change market to be more sta­ble be­cause we don’t have the short-term in­flows and out­flows driv­ing the market.”

If the ring­git was ac­cu­rately re­flect­ing Malaysia’s eco­nomic fun­da­men­tals, it should be stronger than the cur­rent level, he said.

“Growth is not at its strong­est point, but cer­tainly the de­gree of ring­git weak­en­ing that we’ve seen in the past had been ex­ces­sive,” Adnan said.

“It is be­ing more driven by the NDF (non-de­liv­er­able for­ward) market, which tends to spi­ral very quickly in times of un­cer­tainty.” Bloomberg

Adnan Zay­lani Mo­hamad Zahid

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