Thai bond market to swell in 2012
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Last year, the Thai bond market showed improvement in many aspects.
There was a sharp increase in trading volume, a greater number of market participants, and a variety of new debt instruments, both from the government (ILBs, or inflation linked bonds) and the private sector (100-year bonds). Although Thailand’s economic growth is facing a slowdown due to the recent flood devastation, government measures to stimulate growth will aid recovery. These will also help support the bond market.
This year, the bond market is expected to expand further, with the growth of both demand and supply. Bt540,000 million will be issued as government debt securities for the fiscal year 2012 to cover the government budget deficit and debt restructuring. The government is likely to offer a variety of issue terms but will mainly concentrate on 10-year bonds. The value of corporate bonds issuance in 2012 is expected to be between Bt250,000 million and Bt300,000 million, up from last year because of the downtrend in domestic interest rate, plus flood-affected businesses’ need to raise more funds.
Further domestic economic growth and capital inflows are expected to push a 30-per-cent expansion in secondary bond market trading activity on last year’s figure. Trading activity will mainly concentrate on bonds with maturities of less than five years due to uncertainties in the global economy and interest rate trend.
For longer-term bonds, investors will likely focus on highly liquid instruments such as benchmark bonds with maturity of five to seven years. The government bond yield curve is expected to shift down in every tenor by 30-50 basis points following the downtrend of domestic interest rates. Meanwhile, corporate bonds are also expected to be more attractive to investors, especially those in retail.
Capital inflow from foreign investors is expected to increase by 20-25 per cent on the previous year due to the EU public debt crisis and slowdown of US economic growth. These two factors mean that Asia remains an attractive target for foreign investors, who are bound to take a renewed interest in the Thai bond market where foreign investment is currently low.
Foreign money will be attracted to Thai bonds because they offer higher returns with lower risk when compared with other countries in the region. The value of foreign investment in Thai bonds is expected to increase by around 30 per cent in 2012.
However, investors and market analysts will be watching closely to see whether the Thai bond market moves as predicted or not.
Thai Bond Market Association
