[BANGKOK] Thailand’s bond market is on course for its best monthly inflows in more than three years, helped by interest-rate-cut bets and a stronger baht due to surging gold prices.
Global funds have poured about US$2 billion into the local debt so far this month, the highest since February 2022, according to data from the Thai Bond Market Association. In contrast, Indian and Indonesian debt saw outflows during the period.
Thailand’s relative insulation from global market swings has stoked interest in the country’s assets, a change from last year, when bonds saw net outflows due to a litany of political risks.
Economists expect the nation’s central bank to cut the benchmark interest rate for a second time this year on Wednesday (Apr 30), leading to a rush among investors to lock in higher yields. Record high gold prices are also boosting local assets as Thailand is a major trading hub for the precious metal in Asia.
“The correlation between Thailand bonds and US Treasuries has gradually diminished, reducing exposure to volatility spillovers,” said Edward Ng, a fund manager at Nikko Asset Management Group. “The remarkable performance of gold has also increased the Thai baht’s appeal to investors.”
Thailand has the highest gold holdings among peers and its exports of the commodity surged 270 per cent last month from a year earlier. The correlation between the baht’s nominal effective exchange rate and the price of gold has jumped to 0.44 from 0.15 in mid-February, signalling a stronger tendency for the two to move in lockstep.
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The baht has rallied more than 2 per cent since the US tariff announcement earlier this month. Gold prices rose about 7 per cent during the period as investors scouted for safer bets.
The inflows come at a time when the government is weighing a boost in its spending to support the economy and minimise any hit from US tariffs.
Nikko’s Ng sees short-duration bonds, which are more sensitive to interest rate actions, staying insulated from potential fiscal borrowing pressures over the medium term. Nomura Holdings strategist Albert Leung and colleagues echoed the view, saying: “The long end can remain vulnerable”.
The demand pushed the yield on the two-year government debt to the lowest since 2022 this month.
“Large fund inflows in the past few weeks were on the speculation that the central bank will probably make more interest rate cuts to support the economy,” said Wachirawat Banchuen, a strategist at Siam Commercial Bank. Flows have landed in short-term notes, indicating investors believe “the baht will strengthen further”. BLOOMBERG
