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Thailand’s Interest-Rate Swaps Decline After Surprise Rate Cut

Thailand’s interest-rate swaps dropped by the most since August after a surprise interest-rate reduction spurred speculation more cuts will follow. Government bonds fell and the baht was steady.

The central bank cut its one-day bond repurchase rate by a quarter of a percentage point to 2.75 percent yesterday, a decision predicted by three of 23 economists surveyed by Bloomberg. The rest forecast no change. The one-year swap rate reached a 13-week low after the Bank of Thailand said the global economic outlook remained weak and the “substantial degree of uncertainty” could hamper exports.

“The market is most likely to price in further cuts until further signals from the central bank, or we see a turnaround in the data,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong.

The one-year onshore swap, the fixed cost needed to receive a floating payment, dropped 11 basis points to 2.75 percent as of 8:47 a.m. in Bangkok, according to data compiled by Bloomberg. That was the steepest decline since Aug. 3 and the lowest level since July 25.

Exports, which account for about two-thirds of the Thai economy, fell 3.4 percent in September from a year earlier after a decrease of 7 percent in August, according to the median estimate of economists surveyed by Bloomberg before government data due between Oct. 19 and Oct. 26.

The yield on the 3.25 percent bonds due June 2017 rose one basis point, or 0.01 percentage point, to 3.11 percent. The rate slumped 19 basis points yesterday.

The baht traded at 30.62 per dollar, compared with 30.61 yesterday, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 4.27 percent.

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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