Investment in Thailand's bonds continues to face challenges from political instability and the direction of economic policy. The uncertainty surrounding these two issues, along with the trend that the U.S. Federal Reserve may further reduce interest rates this year, could lead the Bank of Thailand to maintain its policy interest rate at a low level for another 1–2 years to stimulate the economy, according to Worut Phromboon, managing partner at Bondcritic, a bond analysis firm in Hong Kong. On October 8, the Bank of Thailand kept the policy interest rate at 1.5%.


When Low Interest Rates Fail to Make Thai Bonds Attractive

Currently, Thailand's economic structure is facing structural issues. Simply lowering interest rates is not enough to restore the country's competitiveness, at least not in the short term. Moreover, the reduction in interest rates has not improved access to funding for Thai SMEs or the middle class, as commercial banks lack the incentive to take on additional risks, resulting in Thailand's interest rates remaining low for too long.

This prolonged low-interest environment makes Thai baht bonds (THB bonds) less attractive compared to bonds from other countries. Additionally, there is a risk of a downgrade in credit ratings in the near future (from BBB+ to BBB), indicating that the current yield environment in Thailand is not strong enough to offset the credit risks and the economic headwinds that are approaching.

For Thai investors who have no other options but to invest domestically, there are only a few traditional investment choices available, including gold, Thai stocks, THB bonds, and real estate. Aside from gold, which has significantly increased in value over the past 12 months, the values of Thai stocks and real estate reflect the current economic condition of Thailand, which can be described as not very favorable. Other investment options outside of mutual funds include Depository Receipts investing in foreign stocks, THB bonds, and fixed deposits in banks, which yield only about 1% per year.

Worut predicts that Thailand will remain in a low-interest rate environment for about 1-2 years, with a gradual increase possible in the third year if the economy grows robustly again, which remains uncertain. Therefore, there is a possibility that interest rates in Thailand could remain low for another 2 years. Thus, investing in THB bonds with maturities longer than 3 years still carries the risk of rising interest rates.


The Bond Market Inaccessible to Retail Investors

One significant limitation preventing retail investors from accessing THB bonds equally stems from the regulations set by the Securities and Exchange Commission (SEC), which state that bonds without a credit rating (non-rated THB bonds) cannot be offered to the general public and communicate that non-rated bonds are high-risk. In reality, non-rated bonds may simply indicate that the issuer does not wish to pay for a credit rating.

Even for rated bonds, many issues are still restricted to high net worth individuals and institutional investors only, as distributors believe they can close sales without public offerings due to the small size of the bond issuance or the presence of anchor investors ready to invest. For instance, the THB bond from Sermsang Power, which offers a yield of 4.5% and has potential from the renewable energy business, clearly reflects this issue—despite being rated “BBB” domestically and having growth potential, it is only accessible to large and institutional investors. Such structural limitations pose a significant barrier to developing a more diverse, transparent, and open Thai bond market.

Therefore, if Thailand wants to make the THB bond market more appealing, enhancing market structure and improving access to information for retail investors is key. Instead of “protecting” investors by limiting risks, regulatory bodies should “empower knowledge” among investors through independent credit research and transparent, easily understandable bond disclosures. Primary bond sheets should provide higher quality details to allow investors to comprehensively assess risks and returns.

Additionally, promoting hedge funds and quality credit analysis institutions will help increase liquidity and create a more efficient secondary market, enabling retail investors to gain deeper insights into bond structures and closely monitor bond issuers. Shifting the mindset from “risk protection” to “knowledge development and transparency” will be a crucial step in revitalizing the Thai bond market and restoring investor confidence.