The Thai bond market will remain robust with favourable returns this year thanks to sustained high interest rates, with new issuances estimated at 1 trillion baht, according to financial advisor SCB Wealth.
Sornchai Suneta, executive vice-president of SCB Wealth's Investment Office and Product Function, said the bond market is expected to continue to yield favourable returns, attributed to elevated interest rates that should decline in the future.
"Historically as bond interest rates decrease, bond prices tend to rise, leading to additional returns for investors in the form of capital gains, alongside coupon returns," said Mr Sornchai.
A notable increase in high-yield supply to the market is anticipated during 2024-2025. Numerous companies have expressed an intention to issue high-yield bonds to refinance existing debt, though there are challenges associated with issuing bonds at a higher cost, he said.
"Caution is advised against high-yield bonds, especially from rollover issuers with default risk under high interest rate environments," Mr Sornchai said. "Increased scrutiny is warranted, particularly for risk associated with potential difficulties in debt repayment during periods of elevated interest rates."
However, Thai corporate bonds pose minimal concern, with the high-yield segment accounting for less than 10% of all debt instruments in the market, he said.
This year, new issuances are estimated to reach 1 trillion baht, including high-yield bonds of 130 billion baht, surpassing the previous year, said Mr Sornchai.
"Investors should include debt instruments in their portfolios in proportion to their acceptable risk levels. For those comfortable with a relatively low-risk threshold, allocating around 70-80% of the portfolio to debt instruments and the remainder to risky assets is recommended," he said.
Conversely, for investors comfortable with higher risk exposure, holding 50-60% in debt instruments and the remainder in risky assets is appropriate, said Mr Sornchai.
For investments in high-yield bonds, it is prudent for investors to adopt a strategy that emphasises risk diversification by limiting exposure to each individual bond, he said. It is crucial to meticulously examine bond conditions, types, and the existence of any guarantees or collateral seizure in the event of default.
Investors are advised to align their bond investments with a decreasing risk profile corresponding to their age, according to SCB Wealth.
An alternative is mutual funds such as SCB Dynamic Bond Fund (SCBDBOND), which invests both onshore and offshore with flexible strategies based on appropriate timing, said Mr Sornchai. This approach helps alleviate investor concerns regarding the credit rating of debt instruments to a certain extent, while the flexibility aids in generating returns based on prevailing interest conditions, he said.