Bond yields drop on likely cut in policy rate
Yields on 10-20-year bonds drooped by 12-18 basis points last month on expectation the policy interest rate will be cut to brake capital inflows that have helped buoy the baht up.
“The bond market is waiting to see which measures will be launched” [to restrain the baht, Ariya Tiranaprakij, deputy managing director of the Thai Bond Market Association (ThaiBMA), said last week. “Now, we believe that the measures will give a positive sentiment to the bond market. If the measures have a negative impact, that will not likely help the government, which plans to raise funds for its projects.”
Foreign and local investors moved to longer-term bonds partly because of the likely rate cut, which will benefit the bond market, she said.
According to the ThaiBMA’s data, net purchase of bonds totalled Bt58.6 billion with net bond holdings of Bt869.7 billion as of April 26. Of total net bond holdings, about 25 per cent was in short-term and 75 per cent in long-term bonds.
Other measures
If there are other measures, such as a requirement for a longer bond-holding period, some investors may not like that, since it would restrict their investment flexibility and liquidity management, Ariya said.
Imposing a tax on the interest income and capital gains earned by foreign investors on Thai bonds is unlikely, as it is not easy to amend the laws to enable this. Some foreign investors come from countries with double-taxation agreements. That means they do not pay any tax to Thailand, she said.
“If the Bank of Thailand decides to levy a tax on interest income from bonds, we don’t know whom it will collect it from,” she said.
