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Foreign Investors Steering Clear of Thai Bond Market Due to Low Returns

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Inflation, Foreign Investors Steering Clear of Thai Bond Market Due to Low Returns

Foreign investors are expected to keep steering clear of the Thai bond market in 2021 after 2 years of selling due to low returns. Furthermore the country’s benchmark interest rate is unlikely to fall further this year, an industry body said on Wednesday.

Other global risk assets offered quicker and higher returns, including stocks and Bitcoin, particularly given the US dollar is expected to weaken, Tada Phutthitada, president of the Thai Bond Market Association (TBMA), told a news conference.

“The spreads between Thai debt and US treasuries are also very small, so foreign funds may not flow in anymore,” he said. Ten-year Thai bonds yielded 1.25% on Wednesday while 10-year US treasury yielded 1.12%.

Foreign investors have sold about 7 billion baht so far this year, after dumping 64 billion baht worth last year and 84.5 billion baht in 2019, association data showed.

“But not too much money may flow out as passive funds will keep investing,” Tada said, noting foreign investors still held 857 billion baht of Thai debt at the end of 2020, or 9.1% of the total outstanding.

Thailand’s policy interest rate should remain steady at a record low of 0.5% this year, as liquidity is not an issue, he said. “Up to three-year bond yields are below the policy rate, reflecting amble liquidity,” Tada said.

No signs of deflation or inflation

The association sees new corporate bond issues of 700 billion-750 billion baht this year, after a 36% drop to 684 billion baht last year, when more firms sought other funding sources while investors shifted to deposits as Thailand saw its first coronavirus cases in early 2020.

Meanwhile, Thailand’s central bank said on Tuesday that economic recovery was still fragile and facing uncertainty, and inflation would return to its target in the middle of the year.

In a note addressed to the finance ministry on headline inflation deviating from the inflation target, the Bank of Thailand said there were no signs of deflation and inflation would be back on target by mid 2021.

The Bank of Thailand has also extended financial relief measures to individual borrowers until June this year, aiming to ease financial burdens stemming from a new round of the domestic Covid-19 outbreak.

Ronadol Numnonda, deputy governor for financial institutions stability, said the central bank has extended and added financial relief measures to both retail and commercial borrowers whose loan status remains classified as performing loans.

For retail borrowers, financial relief measures have been extended to June 30, 2021 after they had expired on Dec 31, 2020.