Thai bonds surge 5.8% amid elevated corporate debenture issuance

Thai bond valuations experienced a notable increase of 5.8% within the first nine months of the year, skyrocketing to a colossal 16.7 trillion baht. This rise was predominantly propelled by government and corporate bonds, as revealed by the Thai Bond Market Association (ThaiBMA).

Corporate debentures, a significant part of this upswing, saw an issuance of 825 billion baht from January to September. The majority of the investors flocked towards bonds with high credit ratings, while a few issuers decided to defer issuance, in anticipation of a more favourable market climate and interest rate costs.

Bond valuation, an essential method to ascertain the current value of predicted future returns, earnings, or cash flow from a bond investment, plays a pivotal role in this context.

Foreign funds, however, have consistently been withdrawing from Thai debt instruments for three successive quarters. This led to an aggregated net sale of approximately 150 billion baht.

Consequently, the foreign investors’ holdings of Thai debt instruments summed up to 940 billion baht by the end of the third quarter. This figure represents 5.6% of the Thai bond market’s outstanding value.

An upward trend was observed in the yield curve for every category of government bond. Corporate bond yield curves with five-year maturities of all credit ratings ascended by 64 to 87 basis points after September.

Thai Bonds Surge

A significant surge was noted in short-term bond yields, aligning with the five hikes in Thailand’s policy interest rate this year and the forthcoming plans to issue government bonds in fiscal 2024.

The yields experienced a swift rise in September due to uncertainties surrounding several of the government’s economic stimulus measures. Two-year Thai bonds witnessed a 90 basis point increase from the end of last year to 2.54%, while 10-year bonds saw a 54 basis point rise to 3.18% at the third quarter’s end.

Ariya Tiranaprakit, the executive vice president of ThaiBMA, predicts that corporate bond issuance will attain 1 trillion baht this year. This figure surpasses the average rate of issuance over the past seven years (2016 to 2022) of 950 billion baht, reported Bangkok Post.

An interest rate trend survey for the rest of this year revealed that most participants anticipate the Monetary Policy Committee to retain rates at 2.5% during its concluding meeting this year in November.

The respondents projected a 10 to 15 basis point increase in the bond yield for the five-year tranche to 2.94% and 10-year bonds to reach 3.29% in the fourth quarter this year. These forecasts are based on the trajectory of US interest rate policy as well as supply and demand dynamics in the Thai bond market.

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