Thai government bond yields have, for the first time ever, stayed below the returns of US government bonds for longer than six months. A persistent current account surplus and prolonged low inflation rates have led to the situation, says the Thai Bond Market Association (TBMA).
The yields on two-year and 10-year Thai government bonds have been lower than those of corresponding US treasuries since October, said TBMA president Tada Phutthitada.
The interest rate environment and inflationary pressure, both of which have remained low for extended periods, together with an increase in the trade surplus, are reasons contributing to the low bond yields, with ample savings and liquidity in the domestic financial market, Mr Tada said.
He said the market expects Thailand's policy interest rate to remain unchanged at 1.5% throughout this year because inflation is projected to be lower than 1%.
Despite how returns generated from Thai bonds are lower than those in the US and other developed markets, foreigners are still investing in the domestic bond market, expecting the baht's value to remain strong and the currency appreciating further down the road on the back of Thailand's strong fiscal position, Mr Tada said.
With this outlook, foreign investors will receive investment returns from foreign exchange and coupon rate gains.
Net foreign inflows into Thai bonds stood at 38.66 billion baht in the first quarter as foreign investors continued to be net buyers from the end of last year at 222.99 billion baht.
The outstanding value of foreign holdings was registered at 871.66 billion baht, or 7-8% of total outstanding value in Thai bonds, with most foreigners investing in government bonds.
"It is also a good opportunity for the Thai government and private companies to raise funds from the bond market during the low interest rate environment, as the cost of funds remains low and they can fix expense costs by issuing long-term bonds," Mr Tada said.
The TBMA targets long-term corporate bond issuance of 800 billion baht in 2018, an issuance ratio similar to last year, he said. But if there are major merger and acquisition deals from large conglomerates such as Thai Beverage Plc, the target could be higher.
Government bonds have a usual issuance rate of 500 billion baht per year, Mr Tada said.
Issuance value of long-term corporate bonds was registered at 227 billion baht in the first three months of 2018, including a major issuance by ThaiBev of 50 billion baht, the TBMA said.
Mr Tada said that while corporate bonds with a maturity date this year are valued at 480 billion baht, 300 billion or 60% is expected to be rolled over and the rest will be derived from new bond issuance.
Short-term bond issuance stood at 779 billion baht in the first quarter, of which 475 billion involved parent companies purchasing stakes from their subsidiaries.
Most issuances were attributed to property developers wanting transactions to be more transparent, versus the previous practice of offering loans to subsidiaries.
Thai bond valuation was 11.77 trillion baht in the first quarter, up 1.8% from 11.56 trillion baht logged at the end of 2017.