Foreign capital outflow last month reached a net Bt12 billion, probably due to profit-taking after the Bank of Thailand let its policy interest rate stand, the Thai Bond Market Association reported yesterday
The rate of return for long-term bonds continues to fall following the dip in domestic investment demand in line with US bonds. The latest foreign holding of bonds was at Bt671 billion, of which 89 per cent was in long-term bonds. Debentures, which account for Bt5 billion, are expected to be vibrant for this year.
ThaiBMA hopes to attract 24 corporate issuers this year.
Ariya Tiranaprakij, an executive vice president, said that in January, Bt2.87 billion flowed out of short-term bonds, with net buys at Bt6.73 billion. Matured bonds amounted to Bt9.6 billion, while net sales of long-term bonds was Bt9.2 billion, resulting in Bt671 billion of foreign holding of bonds.
Short-term bonds accounted for 11 per cent and long-term bonds for 89 per cent. The outflow of funds from January 26-30 was over Bt10 billion. The outflow from long-term bonds was at Bt7 billion, probably due to profit-taking after the Monetary Policy Committee resolved to retain the policy interest rate at 2.0 per cent.
Sell-offs by foreign investors are considered normal, and have no impact on the bond market. The rate of return for bonds with less than 10 years’ maturity continues to decline at 0.21 per cent. Their purchases from local foreign institutional investors, coupled with the dip in the price of 10-year US bonds, which places downward pressure on long-term Thai bonds, are expected to fall as well.
"As for foreign investment this year, we still have to see the impacts of Europe’s quantitative-easing stimulus measures, which will take effect this March.
"However, it is likely that foreign capital inflows will not be much, similar to the projection for foreign capital outflows. This is because the Thai bond market this year is not as interesting as last year, with a flat projection for the rate of return, compared to the steep rate of return of last year.
"Meanwhile, the differential on two-year and 10-year bonds is now less than 1 percentage point, which is close to the other markets in this region, making the Thai bond market less interesting," he said.
The appreciation of the baht is not related to foreign investment in the Thai bond market, as net foreign capital outflow was over Bt12 billion.
The rate of return for Thai bonds this year is unlikely to rise despite the sell-off by foreign investors, as there is still some demand by local foreign institutional investors, coupled with movement in line with the rate of return of US bonds.
This is a good time for the public and private sectors to raise capital as the cost is relatively lower. Last month, there was Bt15.5 billion in new debentures, which is considered normal for January, which is the slow period for new debenture issues.
However, issuance of debentures this year is expected to be just as active as last year. This year, ThaiBMA hopes to see 24 new debentures issuers, the same as last year. Raising capital via debentures is considered to be an interesting alternative.
For example, the latest two-year debentures issue (BBB-) of a property firm offers a 4.7-per-cent rate of return, compared to a bank loan with a minimum lending rate of 7 per cent.
More companies are turning to debentures as an alternative source of funds, besides typical loans from banks, he added.