KUALA LUMPUR: Bank Negara Malaysia’s move to liberalise the interest-rate swap market will help lower hedging costs and reflects efforts to address concerns raised by investors in FTSE Russell’s review, according to Maybank Kim Eng Securities.
Move allows onshore banks to gain access to the non-deliverable interest rate swap market, which would boost liquidity and diversity, analysts led by Winson Phoon wrote in a note.
Transaction volumes in the offshore NDIRS market are estimated to be two to four times larger than that of the onshore market.
With increased market interconnectedness, spreads between the onshore rate-swap curves have more than halved to 1-10bps from as wide as 10-30bps in October for mid to long tenors.
* Previously, onshore bond investors rarely used rate swaps for hedging partly due to the wide bid-ask spreads which could render selling bonds outright more cost effective than hedging.
* NOTE: FTSE Russell will publish the results of its latest biannual fixed-income review on March 29; Malaysia is on the watchlist for possible exclusion from bond index. - Bloomberg