Thai Swaps Set for Steepest Weekly Drop in a Year After Rate Cut

Thailand’s interest-rate swaps headed for the biggest weekly drop in more than a year and government bonds rallied after the central bank unexpectedly cut borrowing costs to spur economic growth.

The fixed cost to lock in one-year rates reached the lowest level since July while the yield on five-year debt slid this week by the most since December. The Bank of Thailand lowered its one-day bond repurchase rate by a quarter of a percentage point to 2.75 percent on Oct. 17, four days after Governor Prasarn Trairatvorakul said no easing was needed. The decision was predicted by three of 23 economists surveyed by Bloomberg while the rest forecast no change.

“The rate cut was a real surprise especially after the governor’s remarks and therefore, the market had to adjust,” said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. “I don’t think they will cut again at the next meeting, but it’s possible some investors are positioning for the possibility of further cuts.”

The one-year swap rate slumped 20 basis points, or 0.2 percentage point, from a week ago to 2.73 percent as of 8:18 a.m. in Bangkok, according to data compiled by Bloomberg. That was the biggest decline since the five-day period ended Sept. 23, 2011. The rate, which is at the lowest level since July 23, was little changed today.

The yield on the 3.25 percent debt due June 2017 dropped 15 basis points this week, the most since the period ended Dec. 2, to 3.10 percent.

‘Substantial Uncertainty’

The Bank of Thailand said on the day of the rate decision that the global economic outlook remained weak and the “substantial degree of uncertainty” could hamper exports. Overseas sales, which account for about two-thirds of the Southeast Asian nation’s economy, decreased 2.7 percent in September after a slide of 7 percent in August, according to the median estimate of economists in a Bloomberg survey before government data due Oct. 24.

The baht weakened 0.2 percent today and this week to 30.70 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged today and from a week ago 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: James Regan at jregan19@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.