Foreign investors have yanked 32 billion baht out of the Thai bond market this month based on speculation about the US Federal Reserve's (Fed) potential rate hike at this week's meeting.
Offshore investors' net buying of Thai debt papers declined to 114 billion baht as of Sept 16 from 146 billion at the end of August, said Ariya Tiranaprakit, executive vice-president of the Thai Bond Market Association.
Capital movement in the bond market is expected to remain volatile because of uncertainties over the timing of the Fed's monetary tightening, she said.
Fund outflows are common in emerging markets at the moment, but the magnitude of the sales spree in the Thai bond market is not significant because the 10-year government bond yield fell only slightly to 2.22% from 2.5% in recent weeks, said Ms Ariya.
Fund inflows to the Thai bond market started early this year as the weak US economic recovery convinced investors the Fed would delay its rate hike. Foreign investors have reaped a windfall from the baht's strength against the greenback.
The baht rose yesterday to 34.84 to the US dollar from Friday's 34.93, reported Reuters. The local currency has gained around 3% versus the dollar this year.
In another development, Ms Ariya said new corporate bond issuance is expected to reach 600 billion baht this year, up from last year's 570 billion, after companies already raised 520 billion from bond offerings this year. Companies have issued bonds worth 78.9 billion baht this month, of which 54 billion was offered by Berli Jucker Plc (BJC).
Despite the high supply, demand for bonds remain strong amid the low-interest-rate environment.
Wisudhi Srisuphan, a deputy finance minister, said fund flows are still in search of yield as loose monetary policy by most global central banks continue to support the fragile global economy.
"This low-interest-rate environment will be a challenge for investors in the medium term," he said at the 3rd Asean Fixed Income Summit yesterday.
Investment in the bond and capital markets has skyrocketed, with the total value in each making up 33.3% and 25.1%, respectively, of the financial system this year.