10-yr bonds head for best week

Thailand's 10-year government bonds headed for the best week since October on speculation the region's improving economic outlook and yield advantage over developed countries will attract investors. The baht gained.

The Asian Development Bank said on Friday that private consumption and investment are bolstering Southeast Asian economies even as the rest of the region is seen expanding less than earlier estimated. International funds bought US$391 million more local sovereign notes than they sold in the first two days of this week, according to the Thai Bond Market Association.

"Inflows into Asia will continue as the region's growth will accelerate, making it an attractive destination," said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. "Moreover, higher interest rates will bring in more funds, putting upward pressure on currencies."

The yield on the 3.625% securities due June 2023 dropped six basis points, or 0.06 percentage point, this week to 3.53% as of 9.41am in Bangkok, according to data compiled by Bloomberg. That is the biggest decline since the five-day period ended Oct. 19. It was little changed on Friday morning.

Ten-year sovereign securities pay 1.59% in the United States, 1.74% in the United Kingdom, 1.29% in Germany and 0.68% in Japan, data compiled by Bloomberg show.

Developing Asian economies will grow 6% this year and 6.6% in 2013, Manila-based ADB said in its Asian Development Outlook 2012 Supplement on Friday as it lowered its forecasts by 0.1 percentage point for each period. Among the region’s economic areas, it only raised its projections for Southeast Asia, predicting an expansion of 5.3% in 2012 from 5.2% earlier.

The baht advanced 0.1% from a week ago to 30.67 per dollar, according to data compiled by Bloomberg. It was little changed on Friday. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell five basis points today to 3.89%. The gauge has declined 14 basis points from Nov 30.

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