Bank of Thailand vows market stability after jump in bond yields

Bloomberg

The Bank of Thailand is seeking to backstop market stability after a jump in bond yields stoked concerns that stresses are building up.
The monetary authority pledged to ensure sufficient liquidity for markets to function well as it unveiled an emergency interest-rate cut to counter the economic shock of the coronavirus outbreak. Governor Veerathai Santiprabhob and other key guardians of the financial system are due hold a briefing on coping with the impact of the disease.
“We have been running down international reserves and providing baht liquidity to facilitate the normal functioning of the financial market,” Bank of Thailand Assistant Governor Chantavarn Sucharitakul said.
The coronavirus crisis has created funding stresses across the world after upending a range of investments and sparking a dash for cash. There are indications high net-worth investors in Thailand have been making mutual fund redemptions, according to Maybank Kim Eng Securities (Thailand) Pcl.
In a sign of the challenging conditions, asset manager TMBAM Eastspring said on its website that trades involving units in two bond funds will be settled five days after the transactions, from between one and two days before. That’s to avoid being forced to sell bond holdings at inappropriate prices amid market turbulence and redemption pressure, the company said.
The reduction in policy rate to 0.75% from 1% takes effect on March 23. In its statement, the central bank said the overall financial system is stable but added the coronavirus outbreak had affected the functioning of Thai markets.
The Thai stock market has plunged 29% this year and the baht is Asia’s second-worst performing major currency. The yield on the 10-year Thai government bond jumped to 1.68% on March 20 from 0.83% on March 9.
“Interbank borrowing typically takes one to two hours to clear but currently takes about half a day,” Maria Lapiz, head of research at Maybank Kim Eng Securities (Thailand), wrote in a note Friday.
Foreign investors have pulled out a net $4.6 billion from stocks and bonds so far in March, according to data compiled by Bloomberg.
The central bank has said that it spent more than 100 billion baht ($3.1 billion) from March 13 to March 19 to buy government bonds. Foreign reserves were $229.2 billion on March 13, down $7.1 billion from a week earlier, the biggest such drop since 2008.