Thai bonds defy global drop as political crisis fuels rate bets

[BANGKOK] Thailand’s deepening political crisis is insulating its bonds from the global rout, as growing expectations of further interest-rate cuts to support the sluggish economy boost demand for local debt.

The yield on the 10-year government bond fell for a fifth straight session to 1.24 per cent on Wednesday (Sep 3), the lowest level since December 2020. In contrast, yields in Australia, Indonesia and Japan surged as concerns over inflation, increased debt sales and fiscal discipline eroded global sentiment. 

Thailand’s economic growth for next year is looking increasingly at risk due to the political deadlock, and a material deterioration in the outlook would warrant another rate cut, according to outgoing central bank governor Sethaput Suthiwartnarueput. He, however, noted the Bank of Thailand has limited policy space to act.

Thai bonds have rallied to emerge among Asia’s best performers this year as investors sought safety amid political instability following the suspension and subsequent ouster of Prime Minister Paetongtarn Shinawatra, ongoing tariff pressures, and a weak economic outlook. 

The crisis deepened on Wednesday as rival parties intensified efforts to block each other’s bids for the premiership.

The rally is also driven by 75 basis points of rate cuts this year, along with expectations that the central bank may ease further. A stronger baht has also enhanced the appeal of fixed-income assets.

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“The current political upheaval in Thailand is not likely to be resolved in a timely manner even though there will be a new Prime Minister soon, which could continue to weigh on the already softer domestic consumption and business confidence,” said Jeffrey Zhang, a strategist at Credit Agricole in Hong Kong. 

Foreign investors have bought about US$1.3 billion worth of Thai bonds so far this year, putting the market on track for its biggest net inflow since 2022, according to Bloomberg data.