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Yields on two-year US benchmark Treasuries jumped from 1.34 per cent in mid-March to 2.45 per cent in early May, before correcting slightly. Investors have changed sentiment to embrace the view that US interest rates have bottomed for now. The move also reveals less panic about the US economy. There is certainly stagnation, but there have been no signs of continued sharp contractions.

Meanwhile, oil prices have continued to climb. Crude oil traded at around US$100/barrel (Bt3,189) at the start of April, but has recently reached new highs of above $125/barrel.

These external factors have had a big impact on Thai markets.

In foreign exchange, positive sentiment on the direction of US interest rates has helped boost immediate-term demand for the US dollar. The dollar has strengthened against a host of currencies including the baht, with the rate moving back above 32 baht to the dollar.

The currency rate has been stable or depreciating for two months - the first sustained period since mid-2005 that the baht has not been consistently strengthening. Market participants had become used to a one-way trend - but that road has changed. Recent movements should lead to greater awareness of FX risks, and more impetus on importers to hedge payables.

In interest rate markets, the combination of global rate trends and high inflation have led to expectations that local interest rates have bottomed. Thai two-year bond yields have moved in a similar (though less volatile) direction to the US, rising from 2.9 per cent in mid-March to above 3.65 per cent. This implies significant market belief that the local policy rate would move up from the current 3.25 per cent.

The market is not pricing in an immediate rise. The gap between one and two year interest rates is significantly higher than the gaps between other periods.

Hence for those hedging against future rate hikes, fixing at a two-year rate would be more expensive compared to longer-term hedges.