Thai bonds may extend 10% losses as swaps price in rate hikes

Thai bonds, the biggest loser among Southeast Asian peers, are set to extend their slump as rising inflationary pressures and the risk of a hawkish pivot by the so-far accommodative Bank of Thailand (BoT) weigh on the debt.

This week’s hike in local fuel prices will further buoy the nation’s inflation print that topped economists’ forecasts for three straight months. Traders have been pricing in more hawkish expectations for the BoT, with the two-year non-deliverable interest rate swap premium over the policy rate widening to 122 basis points, the highest in more than a decade.

Stronger-than-expected inflation prints across emerging Asia this year have already built up market expectations of a more hawkish stance by the accommodative central banks in the region. An index of emerging-Asia bonds has already clocked losses of over 5% this year.

“Market…