Baht Has Best Monthly Gain in Two Years on Inflows; Bonds Rise

Thailand’s baht had its best month since July 2011 as foreigners increased holdings of the nation’s assets after the Federal Reserve’s decision to refrain from cutting its stimulus boosted demand for riskier assets.

Global funds bought $2.9 billion more Thai bonds than they sold this month through Sept. 27 and poured a net $353 million into equities, official data show. The Fed said on Sept. 18 it wants to see more evidence of a recovery in the world’s largest economy before tapering its $85 billion a month of bond buying. The U.S. will release September jobs data on Oct. 4. The baht rose today, after falling earlier amid concern a U.S. government shutdown will endanger talks over raising its debt ceiling.

“The Fed’s decision not to taper its stimulus is the biggest factor supporting regional currencies and we saw some fund inflows,” said Tsutomu Soma, manager of the fixed-income business unit at Rakuten Securities Inc. in Tokyo. “With the U.S. fiscal issue looming, a risk-off sentiment is weighing on the baht today.”

The currency climbed 2.8 percent this month to 31.27 per dollar as of 3:41 p.m. in Bangkok, snapping five straight months of declines and trimming this quarter’s loss to 0.7 percent, according to data compiled by Bloomberg. The baht rose 0.2 percent today after weakening as much as 0.4 percent.

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, increased 43 basis points from the end of August and 13 basis points today to 7.64 percent. The gauge slumped 40 basis points this quarter.

Debt Issuance

Thailand had a $1.3 billion current-account surplus in August following a revised deficit of $1.6 billion the previous month, according central bank data today. The Finance Ministry cut its 2013 economic growth estimate to 3.7 percent from 4.5 percent on Sept. 27, and projection for gains in exports to 1.8 percent from 5.5 percent.

Government bonds rose in September as the finance ministry’s Public Debt Management Office said it plans to sell fewer securities next fiscal year. Southeast Asia’s second-largest economy will sell 375 billion baht ($12 billion) of benchmark bonds in the period starting tomorrow, compared with about 473 billion baht in the previous year.

ING Groep NV trimmed its prediction of Thailand’s 2013 gross domestic product growth to 3.2 percent from 4 percent and forecast the Bank of Thailand will keep borrowing costs unchanged “indefinitely,” Tim Condon, head of Asia research in Singapore, wrote in a note today. “We consider monetary policy bond-market friendly,” the note said, adding that the bank affirms its year-end forecast for the 10-year yield at 4.35 percent.

The yield on the 3.625 percent bonds due June 2023 slumped 39 basis points in September, the most since July 2012, to 3.92 percent, data compiled by Bloomberg show. The rate slid one basis point, or 0.01 percentage point, today.

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