The Thai Bond Market Association expects more foreign capital to move into the bond market after the new government is formed and martial law is lifted.
Suchart Thanathitiphan, ThaiBMA’s head of research and development, said yesterday that from July 1-7, the bond market enjoyed a net capital inflow of Bt4.6 billion, with Bt3 billion going into short-term bonds and Bt1.6 billion into long-term bonds.
During the period, the short-term bond market witnessed Bt19 billion in purchases and Bt16 billion in expirations.
Since the beginning of this year, foreign capital has continued leaving the country, but at a lesser scale of Bt34 billion, of which Bt2 billion was from short-term bonds and Bt32 billion from long-term bonds.
Foreign bond holdings totalled Bt675 billion, of which 19 per cent was in short-term bonds and 81 per cent in long-term bonds.
"The United States’ quantitative easing and rises in rates don’t have much of an impact on foreign capital as these issues were already factored in. Most investment moved out earlier," he said.
The country’s economic fundamentals improved particularly after the National Council for Peace and Order (NCPO) unveiled its economic road map, which has attracted an influx of capital.
If a new government is formed and martial law lifted, they could be positive factors to attract more foreign capital. That could make net foreign capital flows positive for the whole year.
Thailand’s bond yields, which are higher than those in the United States, could cause foreign capital to flow consistently into the bond market, which remains more attractive than its regional peers.
Thailand’s 10-year bond yield is about 1.2 percentage points above the US 10-year bond yield, while Thailand’s one-year bond yield is 2 percentage points higher than the US one-year bond.
Although Malaysian bonds have higher credit ratings than Thai bonds, Malaysia’s inflation remains higher. Lower inflation means less risk to rises in interest rates. Thailand’s policy rate is expected to stay at 2.0 per cent for a while to prop up the economy, Suchart said.