Sell-off pushes up bond yields

Foreign investors have sold nearly 100 billion baht worth of Thai debt over the past two months, helping to push long-term bond yields up by 30-50 basis points, says the Thai Bond Market Association (TBMA).

Niwat: Outflows will likely continue

President Niwat Kanjanaphoomin said capital outflows are expected to continue as the US economy improves and investors seek higher yields.

From the start of this year, foreign investors had been net buyers of Thai bonds worth 160 billion baht but sold off nearly 100 billion in May and June.

Concerns that the US Federal Reserve will ease back its monetary stimulus programmes as the US economy improves have sparked capital outflows from Thailand and other emerging markets, helping to push up bond yields at the longer end of the curve.

The TBMA said 10-year yields for government bonds stood at 3.75% on Friday, 15-year yields at 4.2% and 20-year yields at 4.43%.

In contrast, two months earlier 10-year yields were quoted at 3.44%, 15-year yields at 3.72% and 20-year yields at 3.91%.

Mr Niwat said the recent weakening of the baht to 31 to the dollar is another factor encouraging foreign investors to curb their exposure to cut currency risks.

Conditions for shorter-dated bonds, however, have not fluctuated much, he said.

"If the market expects interest rates will rise, the issuer will mostly launch corporate bonds in the second half to lock in their costs," Mr Niwat said.

The TBMA projects new corporate issuance of 300-350 billion baht this year, with 180 billion in new issues already completed in the first half excluding 20 billion from foreign institutions.

Mr Niwat said investors are increasingly shifting to short-term positions to minimise losses from rising yields.

"The second quarter saw lower returns as both bond and equity trading came under pressure from market volatility over concerns about the Fed's quantitative easing programme, the Chinese economic downturn, the slowdown in Thai exports and currency fluctuations," he said.

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Writer: Nuntawun Polkuamdee
Position: Business Reporter