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Thailand’s Bonds Fall as Rate-Cut Bets Ease on Recovery Optimism

Thailand’s government bonds dropped, sending the benchmark three-year yield to a five-week high, on speculation the central bank will refrain from cutting interest rates after exports rebounded last month. The baht declined.

Exports, which account for about two-thirds of Southeast Asia’s second-largest economy, climbed 14 percent in October after falling 0.1 percent the previous month, a Nov. 30 central bank report showed. The Bank of Thailand kept borrowing costs unchanged Nov. 28 after an unexpected cut in October, citing strong local demand and an improving global economy. Governor Prasarn Trairatvorakul said a further reduction wasn’t needed.

“Recent data suggests the global economy as a whole is beginning to bottom out, and the bond yields are rising to reflect less likelihood of further rate cuts,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “Funds are flowing into Asia, especially into bonds, and the recent yield gains reflect a position adjustment rather than a long-term trend.”

The yield on the 3.125 percent securities due December 2015 rose one basis point, or 0.01 percentage point, to 2.94 percent as of 3:09 p.m. in Bangkok, according to data compiled by Bloomberg. That’s the highest level since Oct. 29.

The central bank kept its benchmark interest rate unchanged at 2.75 percent last week after lowering it by a quarter of a percentage point in October. Consumer prices rose 2.74 percent in November, compared with a 3.32 percent gain the previous month, official data showed yesterday.

The baht dropped 0.1 percent to 30.69 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, dropped 14 basis points to 3.89 percent.

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