Yields on Thai government bonds are projected to continue in a downward trajectory as multiple risks prompt higher demand for hedging through long-term debt securities, says the Thai Bond Market Association (TBMA).
The yield on the 10-year government bond has declined to 1.3% from 1.5% seen in early January, while yields of government bonds with maturity periods of 1-8 years have moved either on a par with or lower than the 1.25% benchmark interest rate, said TBMA senior executive vice-president Ariya Tiranaprakit.
"It's clear that Thai government bond yields have continued declining," Ms Ariya said. "One reason is because local institutional investors and commercial banks have heavily invested in these long-term bonds and avoided investing in high-risk assets amid prevailing uncertainties."
The reason institutional investors have shifted their investments into long-term debt securities is because they expect high investment demand from mutual funds and insurance companies to buy government bonds at the end of this year against the uncertain backdrop, she said.
Although investment returns generated from government bonds are poised to be low, this asset class is still seen as a safe haven to hedge against risk factors, while investment in debentures depends on the financial performance of issuing companies, Ms Ariya said.
The novel coronavirus outbreak has spooked investors, she said, causing an equity sell-off and dampening economic growth prospects worldwide. Thailand's policy interest rate is anticipated to remain low for a prolonged period to lend support to domestic economic activity.
Although fatalities from the novel coronavirus are perceived to be fewer than those seen for Middle East respiratory syndrome and severe acute respiratory syndrome, the new virus could incur more economic losses for Thailand because local tourism relies on Chinese arrivals.
Thailand is estimated to lose 80-100 billion baht in income, mainly from tourism, because of the deadly virus outbreak, which prompted the Chinese government to ban outbound group tours until late March, said Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce.
The loss could shave 0.5-0.7% off Thailand's GDP growth this year, he said.
Market expectations of a 25-basis-point cut in Thailand's policy rate during the first half to spur economic growth will prompt Thai bond yields to continue declining, with a decline in the long-term bond yield curve expected going forward, said Sirinart Amornthum, senior vice-president of the TBMA.
Chatchai Sarit-apirak, chief investment officer and deputy managing director of Kasikorn Asset Management, said last year's two rate cuts by the Bank of Thailand's Monetary Policy Committee were aimed at stimulating economic growth, supporting private investment incentives and taming baht appreciation.
Despite monetary easing efforts, the market still lacks confidence and negative factors are rising, especially the coronavirus outbreak, which could cause global economic growth to subside this year, Mr Chatchai said.