At least 100 billion baht in net offshore funds is expected to flee the Thai bond market this year, pressured by local political tensions, the gloomy economic outlook, a potential sovereign rating cut and the US Federal Reserve's tapering of asset purchases, says the Thai Bond Market Association (TBMA).
President Niwat Kanjanaphoomin said foreign investors in the Thai bond market registered a net outflow of 30.2 billion baht in the January-March period.
They yanked money from long-term paper but still accumulated short-term notes, he said.
In the Thai stock market, foreign investors sold 20.8 billion baht more in shares than they bought in the first quarter.
At the end of March, foreign investor holdings of Thai bonds totalled 679 billion baht — 16% in maturities of less than one year and 84% in long-term paper. Those holdings were down from 707 billion baht at the end of 2013.
Foreign investors turned to selling Thai bonds by a net amount of 3 billion baht last year after a buying spree in recent years stemming from monetary easing by major central banks, the Fed in particular.
Foreign holdings of government bonds fell to 10% from their 14% peak last May. Foreign holdings of long-term notes slid to 12-13% from 17-18%.
But the TBMA expects corporate bonds will draw attention after a sharp fall in government and state enterprise paper. The falling supply could prevent market yields from spiking and open up fund-raising opportunities for the private sector.
"Corporations are expected to raise funds by issuing bonds worth 450 billion baht this year, 150 billion baht of which will be newly issued," Mr Niwat said.
Newly issued corporate bonds in 2013 reached 420 billion baht.
In the first three months of 2014, the private sector mobilised funds via long-term bond issuance to the tune of 131 billion baht, double the same period last year.
Last week's outlook downgrade by the Japan Credit Rating Agency from stable to negative will not affect Thai bond yields, as it was not a credit rating cut, Mr Niwat added.