The Thai government is experiencing heightened borrowing costs due to foreign capital flight from its bond market, exacerbated by attractive US Treasury yields. The government plans significant borrowing and has introduced an economic stimulus, while bond yields rise amid inflation concerns. Despite the challenges posed by a weakening baht, optimism remains about the local bond market’s resilience and corporate bond issuances.
The Thai government is grappling with increased borrowing costs as foreign investors withdraw from the local bond market, leading to a significant capital outflow totaling 34.3 billion baht in the first quarter of the year. This decline has resulted in a decrease in the amount of government bonds held by foreign investors, as US government bonds now offer more attractive returns due to the disparity in interest rates.
To address this situation, the Thai government plans to borrow about 2.4 trillion baht ($66.4 billion) for the fiscal year 2024, reflecting a 9% increase from the previous year. This amount includes over 700 billion baht allocated for new borrowing and 1.7 trillion baht earmarked for refinancing existing debts. Furthermore, a 560 billion baht ($15.8 billion) economic stimulus plan has been announced, aimed at directly supporting consumers and lowering energy prices.
Rising yields on US Treasury bonds and the plan to issue more Thai bonds have contributed to increasing yields on both two-year and ten-year Thai government bonds. Additionally, concerns about inflation and rising interest rates have caused further anxiety in Thai financial markets.
The depreciation of the baht is prompting additional capital outflows as investors become wary of the value of Thai assets. Moreover, uncertainties regarding potential US interest rate cuts complicate the borrowing landscape for Thailand, increasing the cost of funding its budget deficit.
Despite these challenges, optimism persists within the local bond market. Projections indicate corporate bond issuance could reach between 900 billion and 1 trillion baht this year, predominantly consisting of investment-grade bonds. Increased global interest in India may influence the Thai bond market but reflects stakeholder confidence in the local market’s ability to support economic growth.
The Thai government is currently facing significant financial challenges marked by higher borrowing costs and capital outflows from the bond market. Nevertheless, proactive measures such as substantial borrowing plans and stimulus efforts indicate a readiness to address economic pressures. Even amid these challenges, the local bond market shows resilience and potential for growth in corporate bond issuances, providing a glimmer of hope for the future.
Original Source: www.thailand-business-news.com
