There is a slice of the Thai yield curve for everyone.
Local investors are opting for shorter-dated bonds as the spread of Covid-19 in the country convinces them to seek out the safest assets. Global funds buy longer maturities after improving the yield premium over Treasuries and the prospect of baht gains.
Demand at both ends of the curve – along with the stabilization of US Treasuries – helped Thailand’s debt start to recover after a poor start to the year. Benchmark 10-year yields fell more than 20 basis points to 1.90% from their March high, while five-year yields fell by roughly the same amount to 1%.
“Local investors have shortened the duration due to the abundance of onshore liquidity and to avoid the risk of mark-to-market losses if yields rebound,” said Poon Panichpibool, strategist at Krung Thai Bank Pcl in Bangkok .
“Foreigners extended the term in April due to attractive Thai treasury spreads and expectations of the baht appreciating, as evidenced by the increase in short dollar calls from research houses,” he said. he declares.
Thailand reported aa record-breaking one-day virus tally on Friday, prompting the government to impose additional restrictions, including bans on certain alcohol sales and the closing of schools. The growing number of cases appear poised to delay plans to reopen borders to tourism if necessary.
Local investors have responded to the rise in cases by shifting funds to shorter-dated government debt and shying away from corporate bonds. The spread between an index of corporate bonds and sovereigns widened to 436 basis points this week, the highest in at least 10 years, from around 300 basis points before the pandemic.
Foreigners are more interested in the other end of the curve.
The decline in Thai bonds earlier this year saw the additional yield offered by 10-year debt on T-bills of similar maturity soar to more than 30 basis points, after being nearly 40 basis points in below at the beginning of last year. In contrast, the premium of Indonesian bonds over T-bills has narrowed over the same period.
Two other positive factors are encouraging both local and foreign investors: the management of the bond supply by the central bank and the outlookinflation. The Bank of Thailand has significantly reduced the central bank’s debt issuance since November to meet the government’s larger-than-usual financing needs, said DBS Bank Ltd. in a note.
The emergence of the third wave of the virus is likely to ease inflationary pressures due to declining consumer and business confidence, limits on economic activity and declining labor productivity, said Kobsidthi Silpachai, Head of Financial Market Research at Kasikornbank Pcl in Bangkok.
Choosing the next direction for global markets seems to become more difficult than ever amid the uncertainties surrounding the pandemic. Still, the outlook for Thai bonds is improving no matter which end of the curve you look at.
(Updates on the central bank’s debt management strategy in 10th paragraph)