SE Asian currencies slip in wake of sinking yen

SE Asian currencies slip in wake of sinking yen

SINGAPORE (Dow Jones): Southeast Asian currencies mostly
slipped against the U.S. dollar Monday.

Responding to an early slide in the yen, which saw the U.S.
currency push upward to a high of 121.75 yen in Asia, the Thai
baht and the Singapore dollar both fell back. The Indonesian
rupiah also ended lower.

The Philippine peso, however, rose strongly, lifted by an
inflow of foreign funds into the domestic market as a further
fall in Philippine treasury-bill yields helped lift local debt
and equity markets.

In North Asia, both the Korean and the Taiwanese markets were
closed for a holiday.

The drop in the baht at the start of trading was primarily
impelled by the yen's fall, traders said. But it was compounded
by the Bank of Thailand's announcement Friday that it was to lift
restrictions forbidding onshore banks to transact short-dated
swaps with participants offshore.

The removal of the ban, which was only imposed four weeks ago,
triggered a flurry of outright dollar-buying in the forward
market, causing an immediate surge in swap rates in the offshore
market as dealers loaded up on baht funding in hectic trading.

"The market's reaction was extremely predictable. People
thought there was the potential to engineer a liquidity squeeze,
but the effect proved pretty short-lived," a swap trader at a
U.S. bank in Singapore said.

After their initial run-up, the short-term baht yields implied
by offshore swap offer rates drifted off earlier highs, but,
overall, the offshore baht yield curve remained considerably
flatter than last week. By the end of Asian dealing, short-end
yields were at 6.6 percent, up from around 4.6 percent Thursday.

The U.S. currency also ended Asian trading a fraction higher
against the rupiah, finishing Singapore dealing at Rp 8,685, up
from Rp 8,587 on Thursday.

Despite the falls in the baht, the Singapore dollar and the
rupiah, the Philippine peso (PHP) rose strongly on Monday,
supported by a healthy inflow of U.S. dollars into local asset
markets.

Foreign investors, said analysts, were buying into the peso to
take advantage of the beneficial effects on debt and equity
prices of falling interest rates.

At Monday's auction, the average yield of the benchmark 91-day
treasury bill fell to 11.487 percent - its lowest level since
June 30 1997, one week before the devaluation of the baht touched
off the regional currency crisis.

With Philippine inflation expected to fall to 9.5 percent over
the year to the end of March, from 9.9 percent in February and
11.7 percent in January, few analysts see any impediment to
domestic interest rates falling further.

"There is nothing in the Philippines' macroeconomic situation
to say otherwise. On that basis the domestic bond market will
continue to rally," said Daniel Lian, Singapore-based head of
Asian markets research at ANZ Investment Bank.

Lian was not sure that the fall in interest rates onshore
would necessarily be reflected by a parallel fall in offshore
non-deliverable forward rates for the peso, however. The market's
preoccupation with the yen's potential downside would continue to
ensure the peso carries a hefty risk premium, he warned.

Nevertheless, the U.S. dollar gave up ground on the Philippine
Dealing System on Monday, dropping to close at 38.540 pesos, down
from 38.792 pesos at the close on Wednesday, the previous trading
day.