Market Summary

Yield Movements

Between 1 June and 15 August, Thailand's local currency (LCY) government bond yields fell for all tenors, shifting the entire yield curve downward. The spread between 2- and 10-year tenors narrowed significantly from 52 bps on 1 June to 4 bps on 15 August. The downward shift of the Thai LCY government bond yield curve followed the global trend of falling government bond yields, which has been driven by a surge in investor demand for safe-haven assets, particularly sovereign bonds, amid concerns over slowing global growth and escalating trade tensions between the People's Republic of China and the United States. On 7 August, the Bank of Thailand (BOT) decided to reduce its policy rate by 25 bps to 1.5% to boost economic growth and push inflation up toward the target range.

Size and Composition

Thailand's LCY bond market expanded in size to THB13,036.9 billion (USD424.9 billion) at the end of the second quarter (Q2) of 2019 from THB12,649.0 billion in the previous quarter. The growth of 3.1% quarter-on-quarter (q-o-q) in Q2 2019 surpassed the 1.6% q-o-q growth in the previous quarter, driven by faster expansion of both government and corporate bonds. The bond market in Thailand remains largely dominated by government bonds, which accounted for 71.5% of the LCY bonds outstanding in Q2 2019.

Policy, Institutional and Regulatory Developments

In July, the BOT issued new measures to stem the impact of short-term capital inflows amid the strengthening baht. The BOT lowered the limit on the outstanding balance of nonresident baht accounts and nonresident accounts for securities to THB200.0 million from THB300.0, and tightened reporting requirements for nonresident holdings of debt securities issued in Thailand. In addition, the BOT trimmed its supply of short-term bonds for the month of July by THB60.0 billion.