Foreign Inflows Into Thai Bonds Wobble as Political Risks Grow

Marcus Wong
·2-min read

(Bloomberg) -- Foreign investors may start shying away from Thailand’s sovereign bonds as rising political risk and the prospect of tighter monetary policy in the country reduces their attractiveness.

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The Constitutional Court’s decision on Wednesday to remove Prime Minister Srettha Thavisin from his role has rattled global investors, prompting them to pull out $244 million from the nation’s bond market, the largest outflow in seven months. Forecasts for rate cuts in South Korea, India, the Philippines and Indonesia this year are raising the appeal of their sovereign bonds over Thai debt with the Bank of Thailand expected to start cutting rates next year.

Selling by global funds indicates sentiment may be turning after net foreign bond inflows this quarter reached $1.7 billion, the most since 2022. Some investors may also see this as an opportunity to take profit after a Bloomberg index of Thai bonds indicated returns of 6.80% so far this quarter, the highest in emerging Asia after Malaysia.

“Foreign sentiment would likely take a hit — not least as any prolonged political vacuum would raise uncertainties around the growth and policy outlook,” said Jennifer Kusuma, a senior Asia rates strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Thai government bonds may not outperform emerging Asian peers in the next six months on expectations of modest and delayed 50-basis points of rate cuts only in 2025.”

Thai stocks fell on Thursday even as equities in most Asian markets gained and the baht underperformed peers in a sign of rising political risk premium.

Global funds had poured into Thai bonds this quarter after outflows in four of the previous five quarters. Recent signs of a Federal Reserve policy pivot also prompted global funds to snap up short-term bills to wager on the local currency, sending the baht up by around 5% this quarter. About 55% of the total foreign inflows this quarter went into short-term bills.

Kasikornbank Pcl sees foreign inflows into Thai bonds as temporary. “The upcoming Jackson Hole symposium will likely prompt the market to reduce their dovish expectations for the Federal Reserve,” said Kobsidthi Silpachai, a Bangkok-based head of capital market research at the bank.

--With assistance from Suttinee Yuvejwattana and Tian Chen.

(Updates throughout.)

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