Foreign investors buying up Thai bonds

Thailand has become a favorite in the bond market, as foreign investors have bought over $2.6 billion worth of Thai sovereign bonds so far this month, according to Bloomberg business news service, more than bonds from South Korea, India and Indonesia combined, apparently attracted to Thailand’s strong currency and solid current account surplus.

Meanwhile, the Ministry of Finance urged the central bank to cut interest rates to curb inflows of hot money. The bond market is not a target of such flows, but economist and businesspeople believe that hot money is contributing to the rise in value of the baht, Thailand’s currency, and they are concerned exports may suffer if the baht becomes too strong.

The baht has been the best-performing currency in Asia this year, rising 8.1 percent against the United States dollar. Nonetheless, the Bank of Thailand has resisted calls to cut interest rates, which have remained at 1.5 percent since the last cut in April 2015. Thai export growth this year has been accelerating despite the rising value of the baht.

Bloomberg noted that Thai bonds have been attractive in part because the currency has been stable, more stable than China’s yuan, the agency said. “In a sign of how the flood of money into emerging markets is upending conventional wisdom, Thailand with a credit rating just three levels above junk at Moody’s Investors Service has become a favored low-yielding destination for bond investors,” Bloomberg wrote.

The news service quoted analysts as saying the central bank’s reluctance to impose strict measures to check the rise of the baht was a factor that appealed to bond investors. It said that the three-month projection for the baht’s volatility was the lowest among Asian currencies, despite its rise in value so far this year.

“Thai assets provide some relief for investors given the stability of the local currency,” Kenta Tadaide, a market economist at Mizuho Bank Ltd in Tokyo, told Bloomberg.  Thailand “is better positioned geographically compared with the East Asian countries in terms of issues on the Korean peninsula” and the central bank hasn’t introduced strict measures to curb baht appreciation, he said.

The news agency added that investors don’t appear to be concerned about any possible rise in Thailand’s political risk.

The Thailand Development Research Institute, the Kingdom’s premier think tank, last week urged the Ministry of Finance to issue bonds to finance social projects that improve education quality and public health services for disadvantaged people. It also recommended issuing bonds to help small and medium-sized businesses.