Malaysian government bond prices stumbled on Wednesday, as traders bet that domestic interest rates could rise again as early as this month.
The central bank could raise the key overnight policy rate by 25 basis points to 3.50 percent when its monetary policy committee meets on April 25, traders said.
"There's a lot of selling. It looks like the market is preparing for a rate hike with global interest rates going up," said a trader with a medium-sized foreign bank.
Malaysian inflation is stuck near a 6-1/2-year high and economists think there is little chance it will ease after the government raised fuel prices by about a fifth on February 28. The central bank is scheduled to release the monetary policy committee's decision on April 26.
Malaysia raised interest rates by a quarter of a percentage point in February to 3.25 percent, the second increase in three months, to rein in inflation and narrow a widening interest rate gap with the United States. But, not all expect rates to rise this month.
"I don't think there'll be a rate hike yet as Bank Negara would want to keep the ringgit down. If there's a hike, it'll be an ugly scene in the bond market, there'll be a bloodbath," one broker said.
Bond traders were also cautious ahead of the close of tendering for 3.5 billion ringgit ($953 million) of three-year Islamic government bonds on Thursday.
The bonds, to be issued on Friday, could fetch an average yield of 3.81-3.84 percent at the close of tender, the broker said.
Also weighing on the market were expectations of larger government bond issues ahead as the authorities raise funds for a 5-year development plan worth up to 200 billion ringgit, some traders said.
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