1MDB Bonds Soar as Mahathir Vows Full Probe of Embattled Fund

(Bloomberg) -- Bonds sold by Malaysia’s scandal-scarred state fund 1MDB jumped about 17 percent this week, more than any other quasi-sovereign dollar bond in the developing world, amid an anti-corruption push by once and future leader Mahathir Mohamad.

1MDB bonds maturing in 2023, the globe’s worst-performing just one week ago, soared as investors bet Mahathir will follow through on vows to fully investigate the fund. The U.S. Department of Justice alleges that $3.5 billion has vanished from 1MDB, created under the watch of previous Prime Minister Najib Razak. The bonds are still down 2.5 percent this year.

"The market is expressing relief based on the most recent comments from incoming PM Mahathir Mohamad," said Morgan Harting, a money manager at AllianceBernstein who held the bonds in March and declined to say whether he still does. Mahathir’s remarks "suggest he will pursue people rather than assets, which has been well-received by the bond market," Harting said.

The new government is said to be considering investigating Najib for abuses of power. Police searched two condominium units in Kuala Lumpur on Friday as part of the 1MDB probe, seizing 284 boxes containing handbags and 72 luggage bags containing cash and jewelry.

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