Thai Bonds Rise on Demand for Safety as Stocks Drop; Baht Falls

Thailand’s government bonds rose, with the yield on 10-year notes falling the most in five weeks, on speculation investors are favoring the relative safety of fixed income as stocks dropped and consumer confidence dipped.

The baht declined along with the SET Index of equities, which was poised for its lowest close in two months. Stock Exchange of Thailand President Charamporn Jotikasthira, speaking at a press conference in Bangkok, urged investors not to panic, saying economic and corporate earnings growth remain strong. An index of consumer sentiment from the University of the Thai Chamber of Commerce fell to 72.8 in May from 73.9 in April, it reported today.

“Risk sentiment is quite fragile now and domestic investors are shifting to safer government bonds,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo.

The yield on the 3.625 percent notes due June 2023 declined five basis points, or 0.05 percentage point, to 3.57 percent as of 3:43 p.m. in Bangkok, adding to a three basis point drop yesterday, according to data compiled by Bloomberg.

U.S. data is also raising doubts over the strength of an economic recovery. The ADP Research Institute reported yesterday that companies boosted employment by 135,000 workers in May, less than the 165,000 median estimate of economists surveyed by Bloomberg. Labor Department data tomorrow may show U.S. firms added 165,000 jobs in May, the same as a month earlier.

Baht Falls

The baht dropped 0.2 percent to 30.60 per dollar and reached 30.64 earlier, the weakest level since Jan. 2, data compiled by Bloomberg show. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose six basis points to 6.4 percent.

The currency has lost 1.4 percent since the Bank of Thailand cut its benchmark interest rate by a quarter of a percentage point to 2.5 percent on May 29 and said it is ready to act on monetary policy if needed. Central bank data showed on May 31 that the nation posted a record current-account deficit of $3.4 billion in April.

Australia & New Zealand Banking Group Ltd. lowered its target for the baht to 32 per dollar from a May 23 target of 30.70, senior currency strategist Khoon Goh wrote in a research note today, without specifying a timeframe.

The deficit in April means the currency is more sensitive to fund outflows from the bond markets and the central bank may cut its policy rate in the fourth quarter to 2.25 percent, further weighing on the baht, the bank said.

Global funds sold $634 million more sovereign debt than they bought since the end of April, Thai Bond Market Association data show.

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