Market Summary

Yield Movements

Between 31 August and 15 October, Thailand's local currency (LCY) government bond yield curve flattened. Yields rose an average of 4 basis points for bonds with maturities between 2 years and 20 years and dropped at the shorter and longer ends of the curve. The spread between the 2-year and 10-year tenors increased from 9 bps on 31 August to 15 bps on 15 October. The drop in short-term yields followed the Bank of Thailand's policy rate cut in early August. The rise in yields of medium-term and long-term bonds was partly driven by capital outflows from the Thai bond market. The review period saw net foreign outflows totaling THB16.9 billion following the implementation of policies designed to rein in the Thai baht. The sharp 49 bps drop in the 30-year bond yield reflected the weakened growth outlook for the Thai economy.

Size and Composition

Thailand's LCY bonds outstanding amounted to THB12,857.3 billion (USD420.1 billion) at the end of the third quarter (Q3) of 2019, down from THB13,036.9 (USD424.9 billion) at the end of the second quarter (Q2) of 2019. The 1.4% quarter-on-quarter (q-o-q) contraction in the third quarter (Q3) of 2019 reversed the 3.1% q-o-q growth posted in the previous quarter. On a year-on-year basis, Thailand's LCY bond market expanded 5.9% in Q3 2019, down from the 9.4% growth posted in the Q2 2019. The bond market in Thailand remains dominated by government bonds, which accounted for 72.1% of the LCY bonds outstanding in Q3 2019.

Policy, Institutional and Regulatory Developments

A tax regulation amendment affecting the bond market came into effect on August 20. Investments in mutual funds became subject to a 15.0% withholding tax on gross income. The amendment was intended to reduce discrepancies in the tax burden imposed on direct investments in debt instruments compared to investments in debt instruments through mutual funds. In August, the Thai cabinet approved a THB316.0 billion stimulus package to boost the sluggish economy. The stimulus package included additional allowances for low-income earners and the elderly, debt relief and loans for farmers affected by the ongoing drought, incentives for domestic tourism and investment, credit support for small- and medium-sized enterprises, and low-interest loans for home buyers.