Thailand's baht was poised for its biggest weekly advance since December 2011, and government bonds rose, as global funds increased holdings of assets that offer higher yields.
The currency touched a 17-month high on Thursday as overseas investors bought US$2.6 billion more of sovereign debt than they sold this month and purchased a net $297 million of equities, Thai Bond Market Association and stock exchange data show. The baht retreated after Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said on Thursday that exporters will face difficulties if it strengthens further. The 10-year bond yields 3.7%, compared with 1.87% in the United States and 0.75% in Japan.
"Funds are flowing into the whole of Asia, especially Southeast Asia, and Thailand is one of the most attractive places," said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. "It's possible to see smoothing operations to slow the pace of the appreciation, but they may not aggressively intervene to weaken the baht."
The baht climbed 1.7% from a week ago to 29.78 per dollar as of 8.30am in Bangkok, according to data compiled by Bloomberg. The currency, little changed on Friday morning, reached 29.72 on Thursday, the most since August 2011. It was headed for a seventh weekly advance, the longest winning stretch since October 2010.
One-month implied volatility, a measure of expected moves in exchange rates used to price options rose 20 basis points, or 0.2 percentage point, this week to 4.3%. The rate fell 22 basis points on Friday.
'Closely Watching'
Bank of Thailand Governor Prasarn Trairatvorakul said on Thursday that capital inflows into short-term securities were driving the currency higher. The central bank is "closely watching" the situation and has measures to deal with the issue if needed, he said. Capital inflows totaling several billion baht have been recorded in Thailand's bond market this week, mostly in short-term securities, Niwat Kanjanaphoomin, president of the Thai Bond Market Association, said this week.
Government bonds were headed for their first weekly advance this year. The yield on the 3.125% government bonds due December 2015 declined four basis points in the five-day period to 2.93%, data compiled by Bloomberg show. It was little changed on Friday.