Although the yield curve for Thai government bonds is lower than their US counterparts, they have a higher investment return because Thailand's real interest rate is higher than the two-year and 10-year US Treasury yields, says the Thai Bond Market Association (TBMA).
"This means that investment in Thai government bonds, both two-year and ten-year, will provide higher net returns than similar investment in US Treasuries," said president Tada Phutthitada.
The real interest rate, adjusted for inflation, is calculated by subtracting the nominal interest rate from expected or actual inflation. Real investment return is calculated based on the same logic.
As of June 29, the real investment return on government bonds was logged at 1.35% for a 10-year Thai government bond and 0.10% for a 10-year US Treasury, according to the TBMA.
The real return on a two-year government bond was 0.25% for Thailand and -0.24% for a US Treasury bond.
Foreign funds are expected to return near year-end as the global trade war eases, said Mr Tada.
Thailand's economic fundamentals, such as a continuous trade surplus and positive balance of payments for 12 years, imply the baht's value could appreciate again in the future, he said.
Continuous foreign capital inflows also lend support to the baht's strengthening outlook, said Mr Tada.
"I am not worried about capital outflows, but if the foreign exchange rate is quite stable, I am afraid that Thailand will become a safe haven for emerging countries [to park their money]," he said.
Businesses, meanwhile, have at least 6-9 months to prepare and revise their fundraising plans in preparation for the higher interest rates, said Mr Tada.
But Thailand's policy interest rate is likely to be raised slowly as domestic inflation remains very low, he said.
"I don't think the policy rate will increase this year. But I want to see an interest rate hike in next year's first quarter if economic growth keeps expanding and inflation picks up," said Mr Tada.
"Market interest rates are gradually moving closer to the policy rate, while long-term rates are expected to fluctuate in a narrow range of 0.25%."
Prospects of higher inflationary pressure are low as global oil prices have started to become stable and there is no sign of price pressure stemming from commodities, he said.
It is hoped that next year's public investment can spur private investment to fully recover and further drive the economic recovery, said Mr Tada.
Since last year, many companies have been switching from short-term financing to long-term after a series of bills of exchange (B/E) defaults, prompting market participants to be more aware of B/E financing risks, he said.
The TBMA reported B/E issuance for the first five months this year stood at 290 billion baht, down by 54% year-on-year, while long-term debenture issuance was registered at 356.5 billion, down slightly from the 389.3 billion logged in last year's corresponding period.
