Foreign funds continue to move into Thailand's bond market because the country represents a safe haven amid the sell-off in emerging-market bonds and equities, says the Thai Bond Market Association (TBMA).
As of Oct 11, month-to-date foreign net inflow into Thai bonds was 12.1 billion baht, while the year-to-date figure was 113 billion, according to TBMA data.
Non-resident net inflows were recorded at 223 billion baht in 2017 and 62.1 billion in 2016.
A global equity sell-off was sparked by fears of accelerated US interest rate hikes as inflationary pressure in the US rises, said TBMA president Tada Phuttitada.
Thailand's bond market is a safe haven for foreign investors investing in emerging markets because of the country's strong economic fundamentals, Mr Tada said.
Thailand has high foreign reserves and a huge current account surplus, with continuous economic growth, he said.
The country's external debt is at less than 2%, he said, and about half of this debt has already been hedged to reduce foreign exchange risk.
Total foreign outstanding holdings in Thai bonds yesterday stood at 956.89 billion baht, of which 178.9 billion was invested in short-term debt securities and 777.9 billion in long-term bonds.
"Foreign investors have made a historical record high in holdings of Thai bonds, with about 85% of investment allocated to government bonds," Mr Tada said. "Average investment maturity is currently at 7.5 years, longer than the 6.29 years seen at the beginning of this year."
Party 'almost over'
Mr Tada said market participants are becoming more concerned about the US economy, reflected in how the two- and 10-year yield curves of US treasuries have continued to decline from an average of 1.87% to 0.24%.
"The party is almost over for the US stock market," Mr Tada said, pointing to a potential US economic slowdown next year amid rising inflation as a result of effects from the China-US trade war, whereby higher import duties will cause prices of goods to rise accordingly.
The US Federal Reserve will hike interest rates further to curb rising inflation, he said, but such a move will take a toll on operating costs for the private sector.
US stocks are poised to move past their peak this year, he said. Listed firms have already booked a good performance from the windfall generated by a lower corporate income tax championed by President Donald Trump.
If the US has no further policy to boost listed firms' earnings growth next year, a sell-off in US stocks is likely, Mr Tada said.
"Thailand should monitor the US situation closely," he said. "We do not need to raise the policy interest rate [soon], as inflation remains low and low interest rates are still needed to boost economic growth momentum. The baht could appreciate rapidly if we raise the policy interest rate."
Nine-month strength
Despite concerns over economic conditions in emerging-market economies and the Fed's rate hikes, the Thai bond market grew in the first nine months, with corporate bond issuance up 19%, Mr Tada said.
Total outstanding value of Thai bonds for the first nine months was 12.48 trillion baht, up 7.2% from 11.64 trillion recorded at year-end 2017.
Long-term corporate bond issuance was 710 billion baht, up 19% year-on-year, while short-term debenture issuance rose by 13.7% year-on-year.
The outstanding value of corporate bonds for the first nine months was 3.59 trillion baht, up 9.8% from 299.4 billion registered at year-end 2017.
Issuance of bills of exchange fell by 20.5% year-on-year.
Non-rated bond issuance dipped the most, by 33% year-on-year, while issuance offered to PP10 investors fell by 33.1%.
