Thai Baht Has Best Week in Two Months on Fund Inflows to Bonds

Thailand’s baht had its biggest weekly gain in two months as the country’s improving economy attracts fund inflows into the bond markets from abroad.

Cash is flowing into Thai assets as global investors shun Malaysia, which is close to an election, and Indonesia owing to its current-account deficit, Bank of Thailand Governor Prasarn Trairatvorakul said on March 20, adding that special measures to stem the inflows aren’t needed yet. The baht touched a 16-year high this week as options contracts betting on gains became more expensive than those used to protect against declines.

“Unlike Malaysia and Indonesia in Southeast Asia, Thailand doesn’t have a big concern that shakes the country at this moment,” said Tsutomu Soma, manager of Rakuten Securities Inc.’s fixed-income business unit department in Tokyo. “With lots of liquidity supplied by central banks in developed nations, funds are coming to Southeast Asia, and Thailand stands out with its economic growth and political stability.”

The baht climbed 0.8 percent this week, the most since the five-day period ended Jan. 18, to 29.30 per dollar as of 3:19 p.m. in Bangkok, according to data compiled by Bloomberg. The currency declined 0.3 percent today, having touched 29.08 on March 20, the strongest level since a devaluation sparked the Asian financial crisis in 1997.

Global funds purchased $442 million more sovereign debt than they sold this week through yesterday, taking this month’s net purchases to $2.5 billion, Thai Bond Market Association data show. Overseas funds poured in a net $2.7 billion in February and $3.7 billion in January. International investors sold a net $220 million of local equities this week through yesterday, exchange data show.

Volatility Rises

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 23 basis points, or 0.23 percentage point, from a week ago to 5.19 percent. The rate climbed eight basis points today. Call options granting the right to buy the baht in a month’s time cost 0.14 percentage point more than put contracts, compared with a discount of 0.03 percentage point on March 15.

The yield on Thailand’s 3.625 percent bonds due June 2023 dropped seven basis points this week to 3.55 percent, the lowest level since Feb. 8, data compiled by Bloomberg show. The rate declined three basis points today.

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