Thai Bonds Drop Most in a Week on Fund Curbs Concern; Baht Gains

Thailand’s government bonds fell the most in more than a week on concern the central bank is seeking tighter rules on foreign purchases of local debt. The baht rose.

The Bank of Thailand has submitted to the finance ministry a plan, aimed at slowing capital inflows and currency gains, that proposes a minimum holding period and a fee for overseas investment in fixed-income notes, the Bangkok Post reported today, citing Finance Minister Kittiratt Na-Ranong. The minister said last week he was “disappointed” policy makers didn’t cut interest rates after an April 30 meeting, even as he urged them to do so after the baht climbed to a 16-year high.

“With increasing pressure from the government, investors are concerned that the central bank will do something to slow fund inflows,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “Looking at the central bank’s stance so far, the rate cut remains unlikely, which in turn would mean measures such as the introduction of fees are possible.”

The yield on the 3.625 percent debt due June 2023 climbed three basis points from May 3 to 3.41 percent as of 9:31 a.m. in Bangkok, according to data compiled by Bloomberg. That was the biggest increase since April 25. Onshore financial markets were closed yesterday for a public holiday.

The one-year interest-rate swap rate, the fixed cost needed to receive a floating payment, rose three basis points, or 0.03 percentage point, to 2.34 percent.

Capital Controls

No specific date has been set for measures to control fund inflows and the central bank said they would be imposed at an appropriate time, the Bangkok Post cited Kittiratt as saying. The minister prefers an interest-rate cut and said the Bank of Thailand’s current benchmark rate of 2.75 percent is “too high,” according to the report.

The government should limit foreign investment in domestic bonds to maturities of less than six months, Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Organizations, a trade group, said on May 3.

Foreign investors sold $123 million more sovereign debt than they bought this month through May 3 after net purchases of $12 billion in the first four months of the year, according to Thai Bond Market Association data.

The baht appreciated 0.1 percent from May 3 to 29.67 per dollar. It advanced 3 percent this year, the best performance among Asia’s 11 most-traded currencies, and reached 28.56 on April 22 and April 19, the strongest since July 1997.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped nine basis points to 6.29 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

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