Local bond market still turbulent
Raising the public debt ceiling increases yields
The Thai bond market has been very volatile in recent weeks, particularly 10-year government bonds, whose yields rose by around 0.9 basis points in September, hampered by the potential US default. United.
Investors expect the supply of local government bonds to increase from the fourth quarter of this year after the public debt ceiling was raised from 60% to 70%. This is one of the factors behind the rise in yields on 10-year government bonds.
Ariya Tiranaprakit, deputy managing director of the Thai Bond Market Association (TBMA), said another factor affecting the Thai bond market over the past two months was the Federal Reserve’s impending cut in its asset purchases of here the end of this year and the interest rate hike at the start of the year. Next year.
She said the news prompted short-term outflows of long-term Thai bonds as foreign investors attempt to reduce their risk and redirect their funds to the dollar index when the interest rate is expected to rise.
Ms Ariya said about 45 billion baht of foreign funds came out of the local bond market in September.
The market has registered a net inflow of around 65 billion baht since the start of the year.
She said that the 10-year US government bond yield is a benchmark in the global bond market, so whenever there is any news about its movements, the Thai bond market yields fluctuate as well.
The yield on 10-year local government bonds peaked at around 2% in March of this year amid growing concerns over the U.S. inflation rate and rising interest rates, Ms. Ariya said. However, the yield then fell back to the normal range of 1% to 1.5% after a temporary rise in inflation.
A new concern in the market is the unusual prospect of a US debt default. She said it was a political issue that requires the cooperation of both sides to vote for a higher debt ceiling, allowing the government to borrow more money to repay debts and boost the economy.
Investors should watch the Republican Party’s reactions to the negotiations, she said.
“This is not the first time that the US government has faced a debt ceiling deadline, and the bond market has fluctuated every time,” Ms. Ariya said. “I believe the US government can solve the problem because if it defaults on its debts, it will affect the global capital market.”
She suggested investors watch the Thai government bond issuance, which is expected to rise after the public debt ceiling is raised, which will also lead to higher bond yields.
“We believe that market demand is high and can support an increase in the supply of bonds, as commercial bank deposits total 16 trillion baht and monetary liquidity remains high,” Ms. Ariya said.