Malaysia's five-year government bond edged lower on Monday as surging crude oil prices renewed worries of rising inflation and domestic interest rates. "Sentiment is not very good. Although there is some buying, concerns about inflation and interest rates are still playing on people's minds," said a trader with a foreign bank.
Oil prices leapt more than 1 percent on Monday, climbing as high as $58.83 a barrel, after the world's fifth-largest oil producer, Mexico, shut down its biggest oilfields as Hurricane Emily approached the southern Gulf of Mexico.
Investors worry that high crude prices may compound domestic price pressures and force the central bank to raise rates.
The Consumer Price Index rose 3.1 percent in the year through May, its sharpest rise in more than six years, driven by higher food, alcohol, tobacco and transport prices.
Malaysia last raised pump prices of fuel in May - the third increase in six months - and the government warned this month there was a "strong possibility" of another rise. The government uses subsidises to keep pump prices low.
The Southeast Asian economy is a net exporter of crude, but the cost of keeping down the retail price of fuel is weighing down the government's fiscal deficit reduction plan.
The five-year government bond maturing in February 2009 yielded 3.24 percent, up one basis point. It was the most actively traded bond on Monday.
The 10-year government bond maturing April 2014 fell one basis point to yield 4.14 percent.