Goldman Recommend Paying 5-Year THB OIS

Goldman Sachs recommend paying THB 5-Year OIS at 2.18%, with a target of 2.80% and a stop on a close below 1.80%. The trade has negative carry/roll of ~3bp per month.

• Goldman see a “solid runway for Thai growth in coming quarters. Tourism has been ramping up. At the same time, global shipping costs - which pushed the Thai current account 3pp weaker in 2021 - have finally begun to normalize as port congestion ceases. This should also contribute to a strong external impulse in coming quarters despite the ongoing drag from high commodity prices.”
• “Meanwhile, inflation is running at 7.6% Y/Y on account of the spike in food and fuel costs, and various core CPI metrics also signal a firming in stickier inflation categories. As the demand rebounds amid ongoing pass-through from higher input costs and rising inflation expectations, we expect that core inflation should continue to rise, even if more volatile components - including fuel and utilities - peak and decline in coming months.”
• “At the same time, market expectations for the BoT reaction function remain quite dovish as the market continues to expect a gradual pace of BoT rate hikes. The market currently expects a policy rate of 1.70% over the next 12 months, compared to our forecast of 2.50% by Q3 23. Our global rates team continues to flag upside risk to U.S. rates - especially short-end U.S. rates.”
• “Lastly, we see some potential risk on the fiscal side as the government recently announced that the Ministry of Finance will guarantee up to THB 150bn of debt of the Oil Fund.”
• “Given these factors, we view risk-reward as being in favor of THB payers at this point, especially after THB 5-Year OIS has declined 65bp since mid-June. The key risks to our view are if oil prices decline significantly, inflation pressures dissipate and/or the BoT is more dovish than our expectations.”