(July 22): Thailand’s bonds have beaten their emerging Asian peers over the past month and analysts predict they will extend gains on favourable supply dynamics and slower inflation.
Demand for the nation’s bonds has been growing, with a recent 10-year sale drawing the highest bid-to-cover ratio in nearly a year. Thailand’s 10-year yields are forecast to drop by around 25 basis points by the middle of next year, according to the median forecast of economists surveyed by Bloomberg.
“We remain constructive on Thai government bonds in the second half, primarily because growth remains subdued and inflation pressures are contained,” said Desmond Fu, head of investment management at Western Asset Management in Singapore. “This should allow the Bank of Thailand to maintain a relatively accommodative policy stance compared with some regional peers.”
Thai bonds have been the best performers in emerging Asia since the US and Iran signed a peace deal on June 12, driving down oil prices. The nation’s 10-year yield has dropped 19 basis points since then to trade around 2.02% on Wednesday.
One of the drivers of the lower yields has been a reduction in the amount of debt sales expected this fiscal year.
Total issuance is projected to be about 1.26 trillion baht (US$37.3 billion or RM150 billion) in the 12 months through September, roughly 3% below the original plan of 1.3 trillion baht.
Slowing inflation is also a positive. The annual consumer price index fell to 2.42% in June from 2.79% a month earlier, a government report showed this month. That was below the median estimate of 2.7% in a Bloomberg survey of economists.
Thai inflation this year is likely to be lower than the central bank’s earlier forecast of 2.8% as price pressures ease, Bank of Thailand Governor Vitai Ratanakorn said this month. That followed comments from a central bank official that policymakers don’t need to raise rates now as inflation is under control.
“Thai government bonds are expected to hold up well given expectations that policy rates may remain low with Bank of Thailand broadly expected to be on hold,” said Kheng Siang Ng, Asia Pacific head of fixed income at State Street Investment Management in Singapore.
Investor demand has been robust at recent auctions. An offering of 10-year bonds on July 15 drew a bid-to-cover of 2.18 times, the highest for that maturity since August. A sale of 30-year debt on July 8 drew a ratio of 3.43 times, the most in a year.
Expectations that the central bank will keep policy rates on hold are also making bonds more attractive. The nation’s 10-year yield is about 100 basis points above the BOT’s policy rate, which is 1.7 standard deviations higher than the three-year average spread of 30 basis points.
The nation’s 10-year yield will fall to 1.73% by the end of June 2027, according to the median forecast of six economists surveyed by Bloomberg.
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