Baht set for second weekly advance

Thailand's baht was poised for a second weekly gain and bonds advanced as global funds pumped money into the country's debt after Japan announced an unprecedented monetary-easing program earlier this month.

The currency touched a 19-year high on Friday after overseas investors bought US$1.7 billion more government notes than they sold this month, taking this year’s net purchases to $12 billion, Thai Bond Market Association data show. The Bank of Japan said April 4 that it would buy 7.5 trillion yen ($76 billion) of debt per month. Thai central bank Governor Prasarn Trairatvorakul said the baht, Asia’s best-performing currency this year, has started to move beyond its fundamentals.

"The amount of inflows into the Thai bonds is so big, while there is growing speculation Japanese investors will send more money abroad,” said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team at Mizuho Corporate Bank Ltd in Tokyo. “An economic recovery in Japan due to these policies will also help Thailand, as Japan is one of its major export destinations."

The baht advanced 1% this week to 28.72 per dollar as of 8.24am in Bangkok, according to data compiled by Bloomberg. The currency, unchanged today, touched 28.66 earlier, the strongest level since a devaluation in July 1997 that sparked the Asian financial crisis. It has appreciated 6.5% this year.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped one basis point on Friday and two basis points this week to 5.25%.

Reflationary Flows

Bank of Japan board member Ryuzo Miyao said on Thursday that he expects investors based in the world’s third-largest economy to buy more foreign debt. Japanese money managers boosted ownership of baht-denominated notes by 26 percent in the first quarter of this year to 24.4 billion yen, data from the Investment Trusts Association of Japan show. The baht has been among the biggest beneficiaries of the reflationary flows from Japan, according to a Morgan Stanley research note Thursday.

The yield on the 3.625% government bonds due June 2023 fell five basis points, or 0.05 percentage point, this week to an eight-month low of 3.37%, according to data compiled by Bloomberg. The rate was little changed Friday.

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