Foreign investors may start shying away from Thailand’s sovereign bonds as the prospect of a tighter monetary policy compared with peers and rising political risk in the country reduces their attractiveness.
That would mark a turnaround in sentiment after global funds ploughed in US$1.7 billion into Thai bonds this quarter, the most since 2022, making them one of the best performers in the region. Forecasts for rate cuts in South Korea, India, the Philippines and Indonesia this year are likely to raise the appeal of their sovereign bonds over Thai debt, with the Bank of Thailand only expected to start cutting rates next year.
“Thai government bonds may not outperform emerging Asian peers in the next six months on expectations of modest and delayed 50-basis points of rate cuts only in 2025,” said Jennifer Kusuma, a senior Asia rates strategist at Australia & New Zealand Banking Group in Singapore. “Foreign sentiment would likely take a hit – not least as any prolonged political vacuum would raise uncertainties around the growth and policy outlook”
Thai stocks fell on Wednesday, signalling rising political risk premium in the country after a Constitutional Court dismissed Prime Minister Srettha Thavisin from office after finding him guilty of an ethics violation.
Some investors may also see an opportunity to take profit after a Bloomberg index of Thai bonds indicated returns of 6.80 per cent so far this quarter, the highest in emerging Asia after Malaysia.
Global funds poured into Thai bonds this quarter after outflows in four of the previous five quarters. Recent signs of a Federal Reserve policy pivot also prompted global funds to snap up short-term bills to wager on the local currency, sending the baht up by around 5 per cent this quarter. About 55 per cent of the total foreign inflows this quarter went into short-term bills.
Kasikornbank sees foreign inflows into Thai bonds as temporary. “The upcoming Jackson Hole symposium will likely prompt the market to reduce their dovish expectations for the Federal Reserve,” said Kobsidthi Silpachai, a Bangkok-based head of capital market research at the bank. BLOOMBERG
