Thai Bond Market during Remainder of 2011: Buoyed by Capital Inflows amid Rising Interest Rates (Business Brief No.3153)

KResearch is of the view that the outlook for the Thai bond market over the remainder of 2011 may not change much from what was seen during 7M11. It is expected that lingering concern about the slow recovery of the US economy, impact of Japan's massive triple disaster, debt issues in the EU and US, plus rising inflation in Asia, which have resulted in persistent policy rate hikes in the region, will sustain the influx of new capital into Asia, including Thailand, thus keeping net-buying of Thai bonds by foreign investors high. However, considering domestic factors, particularly the continued growth momentum seen in the Thai economy so far this year and sound economic fundamentals overall, plus a relatively clearer political direction here, KResearch is of the opinion that the Thai bond market should remain favorable to fundraising by both the public and private sectors. Although yields in the bond market may trend higher in line with BOT policy rate hikes aimed at maintaining economic stability and curbing inflation, gradual recoveries in Japan's manufacturing output and global economy along with continued public investments here will probably support public and private sector fundraising. Investment demand coming from retail investors will remain strong, especially since interest rates have risen quite substantially amid sound economic growth and a clearer picture in Thai politics, which should support private consumption and investment. Thus, it is expected that the overall value of corporate bond issuances in 2011 may be closed to 2010 at some THB240-250 billion. Bond issuers may include those in many key industries, e.g. energy and petrochemicals, as well as construction contractors, so this may be a good opportunity for savers and other retail investors to diversify their investments.