More than 123 billion baht of foreign capital has exited the Thai bond market since Russia attacked Ukraine, part of a flight to the US dollar market, according to the Thai Bond Market Association (TBMA).
Sirinart Amornthum, TBMA's senior vice-president, said from the start of the war on Feb 24 until March 28, foreign investors recorded net sales of more than 123 billion baht of Thai bonds.
The market saw an outflow of 100 billion baht in March as sentiment was further pressured by the US Federal Reserve's interest rate hike.
Poon Panichpibool, a market strategist at Krungthai Bank, said the foreign funds will return to the Thai bond market in the second half of the year when the economy starts to recover, the Fed has a clearer direction for its monetary policies, and the war situation starts to improve.
Meanwhile, the 10-year Thai government bond yield has risen to 2.54% as the market expects the international credit rating agencies to downgrade Thailand this year as a result of the economic slowdown induced by higher energy prices and production costs.
Analysts from Yuanta Securities Research also expect the Thai government to issue bonds and take loans worth around 1.5 trillion baht in total this year to revive the economy, causing the government bond supply to increase dramatically, consequently pressuring the price.
The analysts said the Thai stock market is also affected by the rising 10-year Thai government bond yield as it has raised financial costs for listed companies.
However, the uptrend in bond yield also reflects a recovering economy and some stocks are being helped by bullish bond yields, especially in energy, petrochemicals, agriculture, finance, electronics, retail and life insurance.
Top picks from the Yuanta analysts include Bangkok Life Assurance, Indorama Ventures, Thai Oil, Kiatnakin Phatra Bank and Kasikornbank.
"Theoretically, when the bond yield goes up the stock market tends to be under pressure in the short term, but it is a sign of economic recovery," the analysts said.
The Yuanta research department studied from September 2010 to July 2011 and from July 2016 to December 2016, two times Thai government bonds rose. The Thai bourse gained 17.5% and 13.4%, respectively, in those periods.