Thai bond market to remain strong with 1 trillion baht new issuances

The Thai bond market is projected to remain strong this year, with estimated new issuances totalling 1 trillion baht (US$27.9 billion), says financial advisory firm SCB Wealth. The sustained high interest rates are expected to contribute to favourable returns.

Sornchai Suneta, Executive Vice President of SCB Wealth’s Investment Office and Product Function, anticipates that the bond market will continue to yield favourable returns due to the high-interest rates that are expected to 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.”

The executive vice president forecasts a surge in the supply of high-yield bonds to the market in 2024-2025. Several firms have indicated intentions to issue high-yield bonds to refinance their existing debt, despite the challenges of issuing bonds at a higher cost, said Sornchai.

“Caution is advised against high-yield bonds, especially from rollover issuers with default risk under high-interest rate environments.

“Increased scrutiny is warranted, particularly for risk associated with potential difficulties in debt repayment during periods of elevated interest rates.”

Corporate bonds

However, Sornchai stated that high-yield Thai corporate bonds pose a limited concern, accounting for under 10% of all debt instruments in the market, reported Bangkok Post.

Sornchai predicts new issuances this year to reach 1 trillion baht, including 130 billion baht (US$3.6 billion) in high-yield bonds, exceeding the previous year’s figures.

“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.”

Investors with a higher risk tolerance should hold 50-60% in debt instruments and the remainder in risky assets, according to Sornchai.

For high-yield bond investments, investors should employ a strategy that emphasises risk diversification by limiting exposure to each bond, Sornchai suggested. He stressed the importance of carefully reviewing bond conditions, types and the existence of any guarantees or collateral seizure in case of default.

SCB Wealth advises investors to align their bond investments with a decreasing risk profile corresponding to their age.

Sornchai also suggested an alternative in the form of mutual funds such as the SCB Dynamic Bond Fund. This fund invests both domestically and abroad, utilising flexible strategies based on appropriate timing.

This approach can help mitigate investor concerns about the credit rating of debt instruments while allowing for return generation based on prevailing interest conditions.