Thailand’s longer tenor bonds beckon global funds after rout
Investors still expect the BOT to cut rates even as the government recently upgraded the nation’s growth forecast
[BANGKOK] Thailand’s longer tenor bonds are drawing in global investors after a sharp sell-off last month as persistent deflation revives expectations of interest-rate cuts from the central bank.
Thai 10-year bonds are now stabilising after plunging the most in over two years in October. That slump, which was the sharpest in emerging Asia last month, occurred when the Bank of Thailand (BOT) defied market forecasts for a rate cut and kept policy unchanged.
Concern over heavy government debt issuance and weaker demand for the benchmark bond at a recent auction exacerbated the rout. However, the prospect of resumed rate cuts, contained inflation and ample cash levels in the banking system are now making Thai bonds appealing, according to M&G Investments.
There is “value emerging at the long-end” of the curve, Peerampa Janjumratsang, Singapore-based portfolio manager at the firm, said. Foreign investors are likely to accumulate Thai government bonds on weakness as they remain underweight on the debt, she said.
Foreign investors have been slow to purchase Thai bonds over the past year compared with historical averages, signalling more room for them to buy. Thai bonds received net inflows of US$1.7 billion from foreign investors over the last year, which is 0.3 standard deviations below the five-year average.
This low level of foreign holdings could have spurred interest in the 10-year bond auction on Oct 29. Demand was “led primarily by offshore investors”, according to M&G’s Janjumratsang. That’s even as a gauge of overall bidding at the auction was the lowest since July.
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Foreign bond investors participated in the auction as they still expect more rate cuts from the BOT due to the bearish economic outlook, said Poon Panichpibool, strategist at Krung Thai Bank.
Increased bond purchases by global investors may help temper any rise in yields should the government resort to additional debt sales to fund its stimulus programmes, including a US$1.4 billion spend to spur consumption. Onshore investors are overweight on local bonds and may be less inclined to buy them aggressively at current levels, M&G’s Janjumratsang said.
Meanwhile, investors still expect the BOT to cut rates even as the government recently upgraded the nation’s growth forecast.
While the nation’s finance ministry recently lifted its growth forecast for this year to 2.4 per cent from an earlier prediction of 2.2 per cent, investors are less optimistic. Economists surveyed by Bloomberg see the Thai economy expanding by 2.1 per cent this year, before the growth rate falls to 1.8 per cent in 2026.
Investors’ scepticism about the upgraded growth figures is reflected in their bond forecasts.
Thailand’s 10-year yield is estimated to fall to 1.4 per cent this quarter, according to a median estimate of strategists surveyed by Bloomberg. That represents a drop of around 30 basis points from the current level of about 1.7 per cent.
Krung Thai Bank’s Poon sees foreign investors buying Thai bonds at current levels. “I see the 10-year Thai yield at around 1.7 per cent or higher as ‘fairly valued’ if the BOT delivers one more 25 basis point rate cut.” BLOOMBERG
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