Thai 10-Year Bonds Fall as Risk of Capital Curbs Spurs Outflows

Thailand’s 10-year bonds fell for a seventh day, sending the yield to an eight-week high, as global funds cut holdings amid concern policy makers will act to stem capital inflows.

Finance Minister Kittiratt Na-Ranong said yesterday that an amended regulation published this week in the Royal Gazette enables the central bank to set conditions or collect fees on funds flowing in or out of the country. The Bank of Thailand has prepared measures to combat baht volatility, and will refrain from using them if they aren’t necessary, Assistant Governor Paiboon Kittisrikangwan said yesterday. The currency reached a 16-year high last month as fund inflows quickened.

“There’s lingering concern about capital-control measures while we see downward pressure on the baht,” said Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co. in Tokyo. “Such an environment discourages foreign investors from putting money in Thai bonds.”

The yield on the 3.625 percent notes due June 2023 rose three basis points, or 0.03 percentage point, to 3.51 percent as of 4:03 p.m. in Bangkok, data compiled by Bloomberg show. That’s the highest level since April 4.

Global funds sold $343 million more local sovereign debt than they bought in May through yesterday, the first monthly outflow since September 2011, according to data from the Thai Bond Market Association. They added a net $12 billion to holdings in the first four months of this year.

Interest Rates

The baht touched a four-month low after the central bank lowered the one-day bond repurchase rate by a quarter of a percentage point to 2.5 percent yesterday and said it is ready to act on monetary policy if needed.

Finance Minister Kittiratt said the reduction was “too little,” adding fund inflows may resume as local interest rates remain relatively high. The Thai rate compares with a maximum of 0.25 percent in the U.S. and 0.1 percent in Japan.

“The political pressure for more rate reductions will probably continue and I think it’s possible to see another cut,” FPG’s Fukaya said. “Obviously, the rate cut is aimed to reduce appreciation pressure on the baht and so, the downward pressure on the currency will also continue for a while.”

The baht was little changed at 30.17 per dollar after reaching 30.25 earlier, the weakest level since Jan. 15, according to data compiled by Bloomberg. The currency lost 2.8 percent in May, poised for a second monthly decline and the largest in a year.

The baht has advanced 1.4 percent this year, the best performance after China’s yuan among the 11 most-traded Asian currencies. It reached 28.56 on April 22 and April 19, the strongest level since July 1997. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose one basis point to 6.85 percent.

Thailand doesn’t want to use measures to curb capital inflows, Areepong Bhoocha-Oom, permanent secretary of finance ministry, said in an interview in Singapore yesterday. “If you start to go to the measures of capital control, the pension funds, all these things, the U.S. and the U.K., they cannot invest in Thailand anymore or in Asean anymore.”

Before it's here, it's on the Bloomberg Terminal.