Asian Currencies Hit by Bond Market Turmoil

By Anjani Trivedi 

        Currencies in emerging Asia hit their weakest in months after days of grinding lower, as bond markets reverse gains and fresh signs of sluggish growth in the global economy emerge.
        Thailand's baht hit its weakest against the U.S. dollar since 2009, while the Philippines peso touched its lowest in almost two months. India's rupee, an investor darling for much of the past year, hovered at its weakest in over a year, while Indonesia's rupiah inched closer to its weakest level since the Asian financial crisis.
        Bond yields in the U.S. and Europe have spiked in recent days, as investors get skittish over the effectiveness of widespread quantitative easing programs.
        "The most relevant factor is real yields in developed markets," said Mirza Baig, Asia head of foreign exchange and interest rate strategy at BNP Paribas in Singapore. Real yields, or returns on bonds adjusted for inflation, have shot up in recent months
        Mr. Baig says there has been a significant bond market tantrum and this impacts emerging markets, as they are a huge driver for calculating returns on emerging market investments. Sharp swings in developed bond markets, which sent U.S. 10-year Treasurys and European 10-year benchmark to their highest closing level in over five months, are exacerbating the moves in Asia. Emerging Asia, he said is "influenced by it and can't escape it."
        Following the global bond selloff and the recent rise in oil prices, the region's bonds are beginning to show signs of outflows with yields, which move inversely to prices, inching higher in recent days. As investors' risk appetite wanes, analysts from Morgan Stanley say currencies that have seen outsize inflows in recent months will be most vulnerable. They point to Thailand's baht and note that the Korean won, Taiwanese dollar and Singapore dollar "also appear exposed, given the magnitude of inflow over the past month."
        As economies in the region grapple with a broadly stronger U.S. dollar and looser monetary policies, currencies have become the only tool for central bankers to spur growth in their economies. Weaker currencies can help languishing export sectors.
        Adding to the pressure on Asian currencies, in recent months, Thailand has eased capital flow regulations to allow outflows that will help weaken its currency that has remained relatively strong compared with its Asian peers. India is facing fresh pressure from investors battling the government against a new tax that could eat away at gains in the rupee in recent months.
        In Indonesia, where the currency has spiraled weaker for months, the central bank and government are putting in place new foreign currency hedging regulations for companies to stem persistent outflows. And new rules, which come into effect July 1, will limit the use of foreign currency for transactions as the central bank looks to increase demand for local currency and boost its value.
        Thailand's baht last traded at 33.76 against the U.S. dollar, while Indonesia's rupiah touched 13,210. The rupee last traded at 64.22.
        Write to Anjani Trivedi at anjani.trivedi@wsj.com
        (END) Dow Jones Newswires

        May 12, 2015 00:28 ET (04:28 GMT)

#FX
#Forex
#SaleForex
#AsianCurrencies
#BondMarketTurmoil