Offshore investors turned net sellers of Thai bonds in May, ending a record streak of 19 consecutive months of net buying as concerns grew over the US Federal Reserve cutting back its monthly asset purchases.
Thai Bond Market Association data showed foreigners were net sellers of 32.9 billion baht last month.
"Foreign investors in the first half of May sold short-ended notes to buy the longer ones, as they were concerned about the authorities' potential measures [to tame capital inflows], but they sold both short- and long-date bonds in the latter half on speculation that the Fed will start to unwind its asset-buying programme soon," said executive vice-president Ariya Tiranaprakij.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong recently said there is no need for policymakers to impose any measures, as the baht has already weakened to beyond the psychological barrier of 30 to the US dollar.
Mr Kittiratt earlier revealed that the central bank had proposed four measures to curb capital inflows and the baht's strength.
The measures are barring foreigners from buying Bank of Thailand bonds, setting a minimum period for them to hold government and state enterprise bonds, levying fees on gains from capital inflows in the bond market and compulsory hedging to discourage foreign investors from taking advantage of foreign exchange gains.
The baht in mid-April surged to a 16-year high of 28.55 to the dollar.
Profit-taking as investors bet that the Monetary Policy Committee at Wednesday's meeting would cut the policy rate also compelled foreign investors to unload bonds, Ms Ariya said.
The committee slashed the benchmark rate by 25 basis point to 2.5% as widely expected, saying the rate cut would cushion downside risks to domestic demand.
As of Thursday, foreign investors had sold bonds with maturities of less than one year at a net position of 37.9 billion baht, but they were still net buyers of longer papers worth 9 billion baht.
"Foreigners' sell-offs of Thai bonds could be only temporary, as fund flows will come back if there is any disappointing economic data in the US," said Ms Ariya.
She said despite the exodus of some foreign investors, foreigners' holdings of Thai bonds will likely hit a fresh record of 1 trillion baht later this year.
Their net holding of 840 billion baht last month was not far from the target, and Ms Ariya believes foreign fund inflows will resume soon.
In the equities market, foreigners were net sellers of Thai shares worth 14.3 billion baht this week.