SINGAPORE / HONG KONG (May 23): The fortunes of bonds in Malaysia’s troubled investment fund are diverging this month: those guaranteed by Abu Dhabi’s sovereign wealth fund have rallied, while notes with support from Malaysia’s own government have dropped.

1Malaysia Development Bhd, whose advisory board has been headed by Prime Minister Najib Razak, holds talks with creditors Monday at 10.00pm Hong Kong time after defaulting last month. Its 4.4% 2023 notes, backed by a letter of support from the government, slumped 6.4% in May, set for the worst slide in 16 months. The fund’s 5.99% 2022 bonds, on which Abu Dhabi’s International Petroleum Investment Co paid interest earlier this month in its role as guarantor, gained 1.9%. That’s the most since at least September 2014.

The contrast reflects growing investor concern about the Malaysian government backing as Najib grapples with an economy forecast to expand at the slowest pace in seven years amid a collapse in oil prices. 1MDB is at the center of multiple investigations from Switzerland to the US amid allegations of money laundering and embezzlement. Even as the firm has consistently denied wrongdoing, it’s brought negative attention to the government.

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