Offshore fund inflows into Thai bonds cannot be largely classified as speculation for short-term gains, as most non-resident inflows go to long-term debt securities, says the Thai Bond Market Association (TBMA).
Although the Bank of Thailand has said it will look into measures to manage offshore inflows into short-term bonds, the majority of non-resident inflows are in long-term debt securities with an average maturity of 7-8 years, said TBMA senior executive vice-president Ariya Tiranaprakit.
Month-to-date non-resident net inflows into Thai bonds were logged at 52.5 billion baht, while year-to-date offshore net inflows were registered at 2.5 billion, according to TBMA data.
Total short-term foreign holding in Thai bonds was valued at 132.5 billion baht, while total long-term holding stood at 859.3 billion as of June 27.
The baht is the top-performing currency in Asia, gaining 5.8% year-to-date against the US dollar.
The rapid gain has stoked concerns that the country's competitive edge will be undermined, dealing a further blow to already-sagging exports.
The strengthening baht has prompted the Bank of Thailand to announce impending measures to rein in speculative offshore fund flows.
The central bank has been closely monitoring offshore fund inflows, especially those parked in Thai short-end bonds, said assistant governor Titanun Mallikamas.
Fund flows could be identified for both speculative and investment purposes because Thai bonds are regarded as a safe haven, he said.
TBMA president Tada Phuttitada said Thailand's bond market still attracts offshore inflows as foreign investors look to benefit from a better rate of return, since local bond yields, even when inflation is accounted for, offer attractive returns.
Foreign investors are also concerned about the 10-year US treasury yield offering a lower investment return compared with short-term bonds offered elsewhere, Mr Tada said.
Demand for Thai bonds remains high, with the value of bond supply issued at around 400 billion baht each year, he said.
The TBMA targets corporate bond issuance of 750-850 billion baht this year. For the first five months, the value of debenture issuance was worth 480 billion baht, with real estate leading the pack in terms of funds raised from the bond market.
Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Market Organisations, said market sentiment continues to be positive as the new government begins to coalesce, with a rate cut signal by the US Federal Reserve adding to the bullish momentum.
Successful negotiations between China and the US at the two-day G20 summit in Japan will shore up sentiment and act as a conduit in mobilising funds into high-risk assets, Mr Paiboon said.