Thai Bonds Set for Second Weekly Rally on Inflows; Baht Weakens

Thailand’s government bonds headed for a second weekly rally after international investors increased holdings of local debt, lured by its yield advantage over developed nations. The baht declined.

The 10-year yield fell to the lowest level this year after global funds bought $1.1 billion more sovereign debt than they sold this week through yesterday, Thai Bond Market Association data show. Thailand’s policy rate is 2.75 percent, compared with a maximum of 0.25 percent in the U.S. and 0.1 percent in Japan. Finance Minister Kittiratt Na-Ranong said on Jan. 31 there’s concern the strong baht will hurt tourism and overseas sales, which account for about two-thirds of its economy.

“The relatively higher yields attract fund inflows,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “The currency retreated amid concern that the authorities in countries with high dependence on exports may take actions to slow gains.”

The yield on the government’s 3.625 percent bonds due June 2023 declined 12 basis points, or 0.12 percentage point, this week to 3.56 percent as of 8:46 a.m. in Bangkok, according to data compiled by Bloomberg. The rate slipped one basis point today to the lowest level since Dec. 28.

The baht weakened 0.2 percent today and 0.1 percent this week to 29.81 per dollar, data compiled by Bloomberg show. It touched 29.66 on Jan. 21 and Jan. 31, the strongest level since August 2011. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped eight basis points today and this week to 5.5 percent.

Finance Minister Kittiratt said this week that he wrote to the Bank of Thailand, reiterating his view that the Thai benchmark rate is luring capital inflows. The central bank next meets to review monetary policy on Feb. 20.

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

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