Baht, Bonds Decline as Investors Look to Fed for Timing of Curbs

Thailand’s baht and government bonds dropped for a second day as investors focus on this week’s Federal Reserve meeting for an indication of when it may curb stimulus that’s driven demand for emerging-market assets.

Global funds have pulled a net $1.1 billion from Thai bonds since May 22, when Fed Chairman Ben S. Bernanke said $85 billion a month of debt purchases could be reduced should there be a sustained improvement in the U.S. jobs market. The Bank of Thailand can handle capital outflows given the size of foreign reserves, Governor Prasarn Trairatvorakul told reporters in Bangkok yesterday. The holdings stood at $176.5 billion on June 7, up 2.7 percent from a year earlier, central bank data show.

“The main theme in the market continues to be speculation about the Fed’s reduction in quantitative easing,” said Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo. “Such speculation is leading to capital outflows from the region as Asia was a big recipient of funds.”

The baht lost 0.3 percent to 30.76 per dollar as of 3:16 p.m. in Bangkok, data compiled by Bloomberg show. It reached 31.19 on June 12, the lowest level since Sept. 7. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 36 basis points, or 0.36 percentage point, to 7.48 percent.

The yield on the 3.625 percent government bonds due June 2023 climbed one basis point to 3.8 percent, according to data compiled by Bloomberg. Sovereign notes declined 1.3 percent this month, less than a 3 percent drop in Indonesia and 1.7 percent in the Philippines, indexes compiled by HSBC Holdings Plc show.

The Federal Open Market Committee begins its two-day policy meeting today. Investors have been monitoring U.S. economic data to determine whether growth is strong enough to prompt the Fed to trim bond purchases.

The Fed Bank of New York’s general economic index climbed to 7.8 this month, the highest since March, a report showed yesterday. Readings of greater than zero signal expansion in New York, northern New Jersey and southern Connecticut.

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