Fund flows are expected to shift from the stock market into the bond and money markets as expectations of further US interest rate hikes are fanned by the 10-year US treasury yield reaching 3%, analysts say.
Komsorn Prakobpol, head of the strategy unit at Tisco Financial Group, said the return on 10-year US treasury bonds has hit 3% for the first time since January 2014, following easing concerns of a global trade war and rising inflationary pressure from increasing oil prices.
Such developments have induced a stock market correction worldwide, Mr Komsorn said.
Stock investment continues to have a downside outlook, but stock markets could rebound next month because the 10-year US treasury yield is not expected to rise further this year, he said.
"We view that the 10-year treasury yield will not be much higher than 3%, as the rate remains higher than the policy interest rate, which current stands at 2.875% as of the Federal Open Market Committee meeting in March, so it implies that the market has absorbed the US interest rate hike," Mr Komsorn said.
The return on the Thai government's 10-year bond remained stable at 2.6% on Friday, according to Tisco Financial Group.
Mr Komsorn said risk factors for this year include lower financial liquidity resulting from how the US Federal Reserve will reduce its balance sheet, the prospects of the European Central Bank ending its monetary stimulus programme, a possible global economic slowdown in 2019 due to rising interest rates and disappearing economic stimulus policies, and political uncertainty in the US.
Tada Phutthitada, president of the Thai Bond Market Association, said the rising US bond yield has not affected fund flows in the domestic bond market. Although foreign investors have sold Thai government bonds, demand among local investors remains high, he said.
The spread in bond return between the Thai government bond and the US bond for 10-year maturity remains unchanged, with yields standing at 2.6% for the Thai government bond and 3% for the US bond, Mr Tada said.
"The market is not surprised, as the US has sent signals of an economic recovery, including interest rate hikes, for a while," he said. "Increasing oil prices and rising inflation are factors boosting the US bond's yield."
Mr Tada said the Thai government bond's yield is expected to remain unchanged for a while, as the domestic policy interest rate is projected to remain low on the back of Thailand's tepid economic growth recovery and low inflationary pressure domestically.
Inflation in Thailand could rise if agricultural prices start to climb, he said.
"The US economy seems to be on a path of recovery, so it is expected that the US dollar will appreciate in the second half, while the baht will slightly depreciate as a result," Mr Tada said.
