Monday, January 10, 2011

MONEY MARKETS-Thai 5-yr swap rate rises on rate hike views

Mon Jan 10, 2011 3:28am EST
SINGAPORE Jan 10 (Reuters) - Thai five-year interest rate swap rates
edged higher on Monday as investors braced for the central bank to
raise interest rates further in coming months.
* Thailand's five-year interest rate swap rates climbed in December
when Thailand's central bank surprised investors by raising
interest rates and have risen further in recent sessions.
* "Interest rates have come under renewed upward pressure recently,
with market players thinking that the central bank will stick to
its monetary tightening stance because the economy is doing well,"
said an interest rate swap trader for a major Japanese bank in
* Thailand's five-year interest rate swap rate rose around 8 basis
points on Monday to roughly 3.63 percent , the trader said.
* A Reuters poll in December showed that the Bank of Thailand will
probably raise its policy rate by another quarter point to 2.25
percent in January and that further increases should leave it at
2.75 percent by the end of 2011. [ID:nTST000172]
* A recent batch of upbeat U.S. economic data has helped add to
upward pressure on Thai swap rates and bond yields, the trader
said, adding that another contributing factor is an easing in
dollar funding pressures that often occurs at the start of a new
* A rise in dollar funding demand in December typically spurs an
increase in dollar funding via dollar/baht FX swaps, which allow
banks to borrow dollars in exchange for the baht as collateral and
vice versa.
* When such dollar funding pressures are strong, Thai baht liquidity
tends to increase as market players offer to lend the baht as
collateral in exchange for dollar funds, putting downward pressure
on Thai money market rates.
* But once such dollar funding demand eases in January, Thai
short-term rates and interest rate swap rates tend to correct
higher, said the trader for a major Japanese bank. (Reporting by
Masayuki Kitano)
Source: Reuters.Com

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