Long-term silver lining as short-term flows persist

Long-term silver lining as short-term flows persist

Foreign fund outflows in short-term Thai bonds are expected to persist given the baht's depreciation, but inflows in long-term debt securities are poised to continue because of the higher investment return compared with the 10-year US Treasury note, says the Thai Bond Market Association (TBMA).

Tada: Returns drive investment appetite

For short-term bonds, foreign outflows reached 80 billion baht in the first half, while debt securities with maturity over one year had registered inflows worth 84.3 billion, said TBMA president Tada Phutthitada.

Foreign net fund flows were logged at 4.4 billion baht in the first six months.

Total outstanding value of foreign investment in domestic bonds stood at 843.82 billion baht, accounting for 7.2% of total market valuation.

Foreign investors' holdings of long-term government bonds was recorded at 78%.

Thailand's bond market in the first half had a total outstanding increase of 4.2% year-on-year to 12.2 trillion baht.

Foreign outflows in short-term bonds are anticipated to occur if the baht's depreciation still persists, but such outflows are projected to subside given an appreciation in the local currency, said Mr Tada.

Foreign inflows are expected to continue moving into long-term bonds since the 10-year Thai government bond has a higher investment return than the 10-year US Treasury note, he said.

Mr Tada said the return for the 10-year US Treasury note, when subtracting inflation, is less than 1%, while the return of the 10-year Thai government sans inflation is 1.8-2%, which has driven investment appetite.

Investment return from short-term bonds with a two year duration is expected to move narrowly this half as the Bank of Thailand is expected to stand pat on the 1.5% policy interest rate until year-end, as the pressure for an interest rate hike is not high thanks to Thailand's economic fundamentals, he said.

But an upside gain for the 10-year government bond is limited given such a projection, he said.

Interest rate policy in 2019 will depend on public investment, inflationary pressure and financial liquidity in the economic system, said Mr Tada.

Separately, the TBMA is studying using blockchain technology for the bond registrar services platform for corporate bonds, in which the Securities and Exchange Commission has already agreed in principle and full operations are expected next month.

The second development phase involves servicing bond deposits, which will take nine months for programme development.

The third phase is associated with structuring "Bond Coin," a clearing and settlement system which will be developed in the next 12 months.

Mr Tada said the bond registrar service platform will be the first phase for which blockchain technology is used for bond trading and information.

The platform, to be developed on a smart contract platform, will employ private blockchain, allowing only registered members like issuers, regulators, registered companies, and investors to use it.

The platform will also contain bond fact sheet information such as interest rates, interest payments and other conditions.

Chaitat Prachuabdee, executive vice-president of TBMA, said this system will cut the existing operational process from 7-10 days to 1-3 days, with greater convenience in accessing bond information.

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