CIMB THB Weekly Fixed Income Commentary for 30 Apr 2015

Market Roundup

• Thai government bonds rallied but the curve steepened as shorter term papers shed more than medium term papers, as the Bank of Thailand slashed its policy interest rate to spur economic growth. Volume traded was also heavy. Alongside the rate cut, volume rose to Bt48.8 and Bt57.0 billion last Wednesday and Thursday versus Bt26 billion per day traded the week before. Bonds performance was already steady in March-April following BoT rate cut on 11 March to 1.75% (-25bps). Its 10-year government bonds fell from 2.80% mid-Mar to below 2.47% end-April.
• The MPC decided to lower the policy rate by 25bps to 1.50%, as the statement revealed that majority of the members were concerned by the slower‐than‐expected economic recovery, while growth trajectory may be dragged further by slowdown in China and other major trading partners. On top of that, the MPC viewed that the lower policy rate can “ease the THB’s recent appreciation, as well as anchoring inflation expectation at an appropriate level”.
• Macroeconomic numbers released last week, ahead of the long holiday weekend, were weaker than expected. Custom exports fell in March by 4.45% against earlier consensus of -3.50% and prior month’s -6.15%. Meantime, as BoT slashed policy rate, its production index for March fell by 1.8% against earlier consensus of 4.0% growth. As important, inflation numbers were also released. The April CPI fell 1.04% yoy against -0.80% consensus.
• BoT loosened monetary policy further at its 29 April MPC meeting. As a result IRS rates have started to move downward. We think swap rates have room to fall further before finding bottom, but do not expect the 5-year onshore THB IRS to sustain below 2.00% unless BoT signals more cuts later this year.