Offshore funds fleeing short-term bonds

Offshore funds fleeing short-term bonds

A woman fills a form to buy a government savings bond at a bank branch in Bangkok. (Bangkok Post file phgoto)
A woman fills a form to buy a government savings bond at a bank branch in Bangkok. (Bangkok Post file phgoto)

Offshore fund outflows continue to be seen in July for short-term domestic bonds after the Federal Reserve signalled potential rate cuts to shore up US economic growth, the Thai Bond Market Association (TBMA) said.

Non-resident net outflows on Thursday were registered at 1.64 billion baht as of 12.26am local time, while month-to-date net outflows stood at 2 billion, according to TBMA data.

Offshore net inflows into Thai bonds totalled 3.21 billion baht during the first half, but they have dwindled to 1.29 billion on a year-to-date basis, said TBMA president Tada Phutthitada.

The recent Fed meeting, which provided further indication of an upcoming rate cut, sped up fund outflows from Thai short-term bonds, causing the baht’s value to fluctuate recently, Mr Tada said.

Lower interest rate expectations usually entice investors to seek high-risk asset classes, such as equities.

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.

Despite uncertainty over the domestic interest rate outlook, the private sector issued debentures worth more than 500 billion baht during the first six months, up 34% year-on-year, according to the TBMA.

Total corporate bond issuance is expected to hit 1 trillion baht this year as companies take advantage of the low-interest environment lock in cheap loans, Mr Tada said.

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