FRIDAY, March 29, 2024
nationthailand

Foreign fund flow into Thai bonds

Foreign fund flow into Thai bonds

The baht's relative strength against the US dollar when compared with other currencies in the region is down to the continued flow of foreign funds into Thai bonds, falling oil prices and carry trade, Maybank Kim Eng (Thailand) suggested yesterday.

"Foreign funds are still flowing into Thai bonds and other bonds in the region, where countries are still accommodative in terms of monetary policy, which is good for bonds.

"The period of low inflation around the world is also good for bonds, while the interest rate in Thailand, which is higher than in many other countries, is also another factor why funds are still flowing into Thai bonds, which is currently holding up the baht," said Maybank’s economist, Tim Leelahaphan.

He explained that with Thailand being a net importer of oil, falling crude prices had contributed to a current-account surplus, which was also positive for the baht.

Meanwhile, the practice of carry trade, with the US dollar being converted into baht given that Thai interest rates are higher than those in the US, coupled with the Thai unit having the potential to appreciate in the next period due to the weakening of the euro, is another reason why the baht seems to be stronger than its regional peers, he said.

Nevertheless, Maybank believes that the short-term appreciation of the baht from funds that are expected to flow to Thailand from the euro zone and Japan will be brief, and that fundamental reasons – such as persisting Thai political uncertainty and the expected hike of the US policy interest rate in the third quarter – will pull down the baht to 33.20 in the same quarter.

The baht was at 32.97 per dollar on January 5, but traded at 32.57 yesterday.

Kriengkrai Tumnutud, head of strategic research at AEC Securities, said the Greek election, which ended in victory for the Coalition of the Radical Left – Syriza – and resulted in a coalition government, meant that the spectre of Greece possibly defaulting on its debt would continue.

"Greece still has to negotiate with the troika [of international lenders] and the market is still wary of default, but it should end with negotiations to relax its tightening policy.

"The Greek situation will affect the market at the end of every quarter this year because they will have to commit to their debt, show improvement of their situation, and ask for more money to commence with the circulation of their bonds during that period of time, which could lead to fluctuation in Thailand’s money market," he said.

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