Foreign investors are fleeing the Thai bond market, with net selling reaching 23.3 billion baht this year, particularly as a knee-jerk reaction after the central bank's unexpected rate cut.
Offshore investors' selling spree intensified after the central bank's 25-basis-point policy rate reduction, said Ariya Tiranaprakij, an executive vice-president of the Thai Bond Market Association (TBMA).
Tada: Bonds good to finance projects
They yanked 12.3 billion baht out of the Thai bond market in January but bought 10.2 billion more than they sold last month before returning to net sales of around 21.2 billion so far this month.
The central bank's rate-setting panel on March 11 unexpectedly jumped on the monetary easing bandwagon by cutting its policy rate for the first time in a year — by 25 basis points to 1.75% — in a bid to gain economic traction amid weakening growth prospects.
The rate cut came after the bank lowered its 2015 economic growth forecast to 3.8% from 4%.
"The bond market may fluctuate this year, resulting from foreign capital movements and global money pumping. However, it might not significantly raise bond yields as supply falls short of demand," Ms Ariya said.
A TBMA study of demand and supply in the secondary bond market over the past five years found demand increased by 863 billion baht a year on average, while supply increases averaged only 490 billion a year, leaving 373 billion in excessive demand.
TBMA president Tada Phutthitada said building up supply had been a priority for his agency.
"We've proposed that the government consider issuing infrastructure bonds as an alternative fund-raising source to finance infrastructure investment," he said, adding that the instruments would work in the same way as securitisation.
Securitisation is a financial instrument backed by revenue-generating assets such as mortgages.
Mr Tada said the TBMA was also asking the Securities and Exchange Commission to allow Thai companies issuing US-dollar-denominated bonds to sell them to high-net-worth investors.
As of the end of last year, the bond market's size represented 76% of GDP, well below the equity market at 113% of GDP or bank loans at 105%.