Bond yields projected to fall at year-end

Yields for the five-year government bond are expected to fall in November and December because of the recent rate cut by the Bank of Thailand’s Monetary Policy Committee, says the Thai Bond Market Association (TBMA).

In addition to the central bank’s latest rate cut, the forecast includes a downward outlook for global interest rates, slower domestic economic growth momentum and low inflation, said TBMA senior vice-president Sirinart Amornthum, citing a survey on interest rate expectations conducted on Oct 21.

But the 10-year government bond yield is expected to remain around 1.56% amid neutral demand and supply for bond investment and receding foreign fund flows in Thailand’s capital market, said Ms Sirinart.

Offshore funds continued net outflows for the fifth consecutive month in October, with year-to-date net outflows in short-term debt securities at around 130 billion baht, compared with net inflows into long-term bonds of 52 billion, according to TBMA.

Total non-resident net outflows were registered at 78 billion baht.

“Even as Thailand’s benchmark interest rate remains higher than the rates of developed countries, it has not attracted much foreign fund inflows as Thailand is an emerging market with higher investment risks than developed markets,” she said.

Investor confidence for the three months through January, meanwhile, remains in neutral territory as confidence is weighed down by geopolitical conflicts.

The investor confidence index stands at 86.44, down 22.6% from September’s reading of 111.62, according to the monthly survey by the Federation of Thai Capital Market Organizations (Fetco).

An index below 80 points is considered bearish, 80-120 is neutral and over 120 is bullish.

Despite progress in US-China trade negotiations, uncertainty over the result is the biggest drag on confidence, said Fetco chairman Paiboon Nalinthrangkurn.

The global economic slowdown and concerns over third-quarter earnings of SET-listed companies are additional factors derailing investor confidence, said Mr Paiboon.

Factors lending a boost of confidence are expectations of further monetary policy easing by the US Federal Reserve and improved domestic economic conditions, he said.

Market sentiment for the last two months could improve if geopolitical tensions, such as the Sino-US trade dispute and Brexit, subside, said Mr Paiboon.

On the domestic front, lower interest rates should lend a leg up to the stock market rally, while year-end purchases of long-term equity funds will only add to the positive momentum of the bourse, he said.