Malaysian bond yields fell to the lowest level since August and the cost of insuring the debt against default declined as planned sales of land and power assets by a state-owned company improved investor confidence.

1MDB is finalising the sale of a property project in Kuala Lumpur known as Bandar Malaysia and will clear its debt by the end of the year, New Straits Times reported today, citing 1MDB president Arul Kanda. The investment company, which has come under scrutiny from lawmakers for accumulating around RM42 billion of debt in less than five years and for almost defaulting on a loan, agreed to dispose of its power assets to China General Nuclear Corp on Monday for RM9.83 billion.

The yield on the bonds due 2020 fell 0.4 basis points to 3.68 percent, the lowest since Aug 4, as of 10.43am in Kuala Lumpur, prices from Bursa Malaysia show. The yield has dropped 10 basis points since Monday. The cost to insure Malaysia’s sovereign debt using five-year credit-default swaps declined five basis point to a 10-week low of 172 yesterday, according to CMA data.

“The sale of power assets has contributed positively to investor sentiment on Malaysia, resulting in a rally across CDS spreads and local-currency bonds,” said Winson Phoon, a Kuala Lumpur-based fixed-income analyst at Maybank Investment Bank Bhd. “I think the rally can continue in the near term.”

IMDB investigations

The offloading of the power assets and the planned 60 percent sale of Bandar Malaysia stake will help reduce the debt burden of 1MDB substantially and this, to a certain extent, will help alleviate concern about the contingent liability to the government, Phoon said.

The yield on 1MDB’s US$3 billion (RM12.61 billion) of 4.4 percent dollar notes due 2023 rose two basis points yesterday after falling 14 basis points over the previous two days, according to prices compiled by Bloomberg .

1MDB has been the subject of investigations amid allegations of financial irregularities, although an initial auditor-general’s report didn’t reveal any suspicious activity. Prime Minister Najib Abdul Razak, who heads the advisory board of the state-owned investment company, has resisted calls from ex- premier Mahathir Mohamad to step down over the fund’s performance.

The ringgit strengthened 0.1 percent to 4.2122 a dollar, taking its three-day gain to 2.1 percent, data compiled by Bloomberg showed.

- Bloomberg