3-year bonds advance, policy rate cut

Thailand’s three-year government bonds headed for their best week since November and the baht fell as the central bank cut borrowing costs.

The yield dropped to the lowest level since 2010 today after the Bank of Thailand lowered its benchmark interest rate to 2 per cent from 2.25 per cent on March 12, as expected by 16 of 26 economists surveyed by Bloomberg. The Constitutional Court will consider annulling the Feb 2 incomplete election and ruled on March 12 that Prime Minister Yingluck Shinawatra’s 2 trillion-baht ($62 billion) infrastructure bill was illegal.

“The rate cut was partly priced in before the meeting, but helped drag down yields and the baht after the decision,” said Kozo Hasegawa, a currency trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Investors are keeping their eyes on political developments and, on that front, will stay on the sidelines for a while.”

The yield on the 4.125 per cent bonds due November 2016 dropped 11 basis points this week and one basis point today to 2.59 per cent as of 8:33am in Bangkok, according to data compiled by Bloomberg. That was the biggest weekly decline since the five-day period ended Nov 29.

The National Anti-Corruption Commission extended its deadline for Ms Yingluck to submit her defense statement over accusations of negligence in her role in overseeing the government’s rice-buying program by an extra 15 days from today, the commission said in a statement yesterday.

The baht fell 0.1 per cent from March 7 and was little changed today at 32.342 per dollar, data compiled by Bloomberg show. It has weakened 3.7 per cent since the anti-government demonstrations began on Oct 31, the worst performance among Asia’s 11 most-traded currencies after Malaysia’s ringgit.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined three basis points this week to 6.55 per cent. The gauge fell seven basis points, or 0.07 percentage point, today.

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