On a monthly basis, Thailand’s bond market is experiencing its strongest inflows in over three years, driven by expectations of interest rate cuts by the Bank of Thailand (BOT) and a robust baht strengthened by rising gold prices.
According to the Thai Bond Market Association (ThaiBMA), global investors have invested approximately $2 billion in Thai debt in April, marking the largest inflow since February 2022.
Thailand’s reduced vulnerability to global market fluctuations has made its assets more attractive, a turnaround from last year when political uncertainties led to bond outflows. Conversely, Indian and Indonesian bonds have witnessed outflows this month.
As economists forecast a second interest rate reduction by the BOT this year, this prompted investors to secure higher yields. Additionally, record gold prices are enhancing the appeal of Thai assets, with the country being a key gold trading hub in Asia.
Edward Ng, a fund manager at Nikko Asset Management Group, noted that the link between Thai bonds and U.S. Treasuries has weakened, thus lessening exposure to volatility. Furthermore, the strong performance of gold has bolstered the baht’s attractiveness to investors.
Thailand’s gold holdings are the highest among its peers, with exports of the precious metal skyrocketing 270% last month compared to the previous year. The relationship between the baht’s nominal effective exchange rate and gold prices has significantly strengthened, increasing from 0.15 in mid-February to 0.44, indicating a greater alignment in their movements.
On top of that, the baht has appreciated by more than 2% since the recent U.S. tariff announcement, coinciding with a 7% rise in gold prices as investors seek safer investments. These inflows coincide with the Thai government’s plans to increase spending to bolster the economy against U.S. tariffs.
Short-duration bonds are expected to remain protected from mid-term fiscal borrowing pressures, according to Nikko’s Ng. Nomura Holdings strategists, on the other hand, warn that long-duration bonds may remain susceptible.
Wachirawat Banchuen, a strategist at Siam Commercial Bank (SCB), explained the significant fund inflows have been based on speculation of further interest rate cuts by the central bank to support the economy. Investments have been focused on short-term notes, reflecting investor confidence that the baht will continue to strengthen.
