Thai Bonds Snap Three-Day Loss on Inflows Before Policy Review

Thailand’s government bonds snapped a three-day drop amid speculation the central bank will leave borrowing costs at a level that has helped fuel a 2.6 percent rally in the currency this year. The baht was little changed.

Governor Prasarn Trairatvorakul said Feb. 6 the monetary authority is under “no pressure” to cut interest rates even after Finance Minister Kittiratt Na-Ranong renewed calls for easing. Thailand’s policy rate of 2.75 percent compares with a maximum 0.25 percent in the U.S. and 0.1 percent in Japan. The central bank will review monetary policy on Feb. 20.

“The BoT is likely to keep the rate stable despite calls from the finance minister to cut,” said Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA. “The stable environment is also positive for bonds as investors enjoy higher yields than developed markets and potential currency gains.”

The yield on the 5.125 percent government bonds due March 2018 was steady at 3.22 percent as of 3:21 p.m. in Bangkok, according to data compiled by Bloomberg. It increased six basis points, or 0.06 percentage point, in the first three days of the week.

The baht was little changed at 29.82 per dollar after touching 29.75 earlier, the strongest level since Feb. 8, data compiled by Bloomberg show. One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 20 basis points to 5.53 percent.

Overseas investors bought $1.3 billion more sovereign debt than they sold this month through yesterday, Thai Bond Market Association data show. They pumped a net $28 million into local equities yesterday, exchange data show.

Finance Minister Kittiratt, who has repeatedly called for a reduction in borrowing costs, said this month he wrote a letter to Bank of Thailand Chairman Virabongsa Ramangkura, reiterating his view that the Thai rate is luring capital inflows. The central bank governor said on Feb. 6 the missive hasn’t put pressure on the BoT and the monetary policy committee will make a decision based on economic data.

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