The Thai Bond Market Association (ThaiBMA) does not expect short-term-bond interest rates to increase before the second half, and then only by 25 basis points, since the country's economy is still recovering and there is no inflationary pressure.
Meanwhile, long-term-bond interest rates are not expected to increase until the second quarter at the earliest, since the euro zone and Japanese economic recoveries are still slower than expected, China has altered its monetary policy, and the US Federal Reserve is expected to increase its policy interest rate this year.
Yield of government short-term bonds (less than one-year maturity) at the end of 2014 was 25 basis points lower than at the end of 2013, which is in accordance with the lower 2014 policy rate compared with 2013. The Bank of Thailand’s policy rate has stayed at 2 per cent since the last cut on March 12 last year, while yields for government long-term (one-to-10-year) bonds at the end of 2014 were also 60-110 basis points lower than a year earlier, since the domestic and global economies were sluggish.
"Any increase in Thailand’s interest rates in the second half of the year would be minimal unless the increase in the US interest rate is higher and comes faster than the market has expected. But I do not think they [the Americans] would do that, since it took them a long time to get their economy back to the current level and nothing good can come from shocking the market like that," said Tada Phutthitada, president of the ThaiBMA.
He added that during the first half, while interest rates remain low, the private sector would use this opportunity to raise funds in the bond market before rates go up in the second half.
"Japan is also expected to implement another round of QE [quantitative easing] at a level that is larger and faster than before, since the lower global oil prices have countered the effects from the higher living costs resulting from the increase of its value-added tax [rate] last year," he said.
Thailand’s bond market last year experienced a Bt26.2-billion net outflow of foreign capital. Tada expects the outflow to continue but at a lower level given the situations in the euro zone and Japan.
Nevertheless, there was a net inflow of around Bt109 billion in foreign capital into long-term bonds during the last seven months of 2014 after the military seized power from the elected government and revamped the Kingdom’s political landscape.
Non-residents’ bond holdings amounted to Bt683.21 billion as of the end of 2014, 3.7 per cent lower than a year earlier, and currently account for 7.36 per cent of the total market. The outstanding value of the bond market ended 2014 at Bt9.29 trillion, up by 3.3 per cent from 2013, and 37 per cent of the total was in government bonds.