Thai Swaps Have Steepest Weekly Drop in a Year After Rate Cut

Thailand’s interest-rate swaps had 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 a four-month low, 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 22 basis points, or 0.22 percentage point, from a week ago to 2.7 percent as of 3:22 p.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 June 14, fell three basis points 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 3 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 0.1 percent this week to 30.69 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.