Thailand's government bond yield curve is trending flatter after inflation slowed more than expected and the economy weakened, spurring buying of long-dated bonds. A Bloomberg survey expects the spread between 2-year and 10-year bond yields to narrow to about 74 basis points by year-end, from 98 basis points on Wednesday. Thai inflation in July stood at 1.95% year-on-year, down from 2.42% in June and 0.45 percentage points below economists' estimates, marking the biggest miss among Asian emerging markets. Meanwhile, Thailand's economy slowed sharply in the second quarter, further boosting demand for long-term bonds as markets assess that Thai interest rates are likely to stay low. Philip McNicholas, Asian sovereign debt strategist at Robeco, noted that Thailand's yield curve is unusually steep, making long-dated bonds attractive on a value basis and supporting the trend toward a flatter curve, especially if inflation continues to undershoot expectations. The trend could gain further support if the U.S. Treasury yield curve moves in the same direction, following Treasury Secretary Scott Bessent's announcement of a long-dated bond purchase program, which could help depress long-term U.S. yields. Citigroup strategists said Thailand's yield curve is currently steeper than that of the U.S., leaving room for further flattening, and that Thai long-dated bond auctions have seen increasing support since July. Earlier, Citigroup recommended a strategy expecting the spread between 2-year and 10-year Thai swap rates to narrow to 60 basis points from around 85 basis points currently.
Citigroup Inc.Citigroup strategists recommend a trade expecting Thai yield curve to flatten, potentially benefiting their trading positions.
Low inflation and slowing economy lead to expectations of low rates, causing long-dated bond yields to fall.
