Thai long-dated bonds are currently an attractive investment due to the steepest yield curve in emerging Asia. The premium on 10-year bonds over two-year notes is nearly 110 basis points, a gap near its widest since November 2022. This steepness is perceived as compelling, with a Bloomberg analysis suggesting 10-year yields are roughly 40 basis points above their fair value, having increased by nearly 60 basis points.
Foreign investors have shown renewed interest, purchasing approximately $342 million in Thai bonds this quarter, partially recovering from roughly $1 billion in net outflows in March. Despite this, some sales indicate a volatile capital movement. Looking ahead, Poon Panichpibool, a strategist at Krung Thai Bank, forecasts the Thai 10-year yield to drop to 2.15% by year-end, recommending clients to increase their duration in the 10-year tenor.
The Bank of Thailand (BOT) is expected to maintain its policy rate at 1% through 2026 and 2027, with no imminent interest rate increases anticipated due to cooler inflation data in May and June and a weak economic outlook. This dovish stance, compared to other emerging Asian central banks, creates a favorable environment for long-dated bonds. Rong Ren Goh, a fixed income portfolio manager at Eastspring Investments, noted that Thai bonds at the long end offer attractive valuation after a sharp and relatively unusual curve steepening. The Thai Bond Market Association (ThaiBMA) also reported that the BOT's policy rate will remain at $1 throughout the year.
While foreign ownership of Thai government bonds is relatively small at 5.2% ($947 billion baht) of the total market capitalization, it is seen as a protective factor against significant capital flight. Despite net inflows of approximately $26 billion baht into the Thai bond market since the beginning of 2026, the movement has been volatile. Analysts remain cautious about external pressures, particularly the potential for further hawkish interest rate hikes by the US Federal Reserve, which could trigger capital flight from emerging markets like Thailand.
The domestic market is experiencing internal stress, including a distorted yield curve where aggressive short-term positioning depresses near-term yields, while sustained selling pressure on long-term securities pushes long-term yields upward. This scenario increases funding costs and tightens liquidity for corporations issuing long-term debentures. The government plans to issue $4 billion baht of AomPlus bonds monthly, starting late July, to provide a risk-free investment tool, with attractive coupon rates for three-year and 10-year maturities.
