Impact of Rising U.S. Bond Yields on Thai Corporate Bonds: ThaiBMA Sees Thai Yields Stable, Expects 1% Interest Rate Through Year-End

Global financial and investment markets have faced significant pressure from geopolitical conflicts, especially tensions in the Middle East involving the U.S., Israel, and Iran, which have directly affected oil prices and global inflation.

These factors have forced many central banks to maintain high interest rates longer than expected (High for Longer), pushing U.S. government bond yields sharply above 5%.

For investors holding or considering Thai corporate bonds, the key question is how much the sharp rise in U.S. bond yields will affect the returns and attractiveness of Thai corporate bonds, especially as Thai interest rates remain low and the market expects the Bank of Thailand to hold rates at 1% through the end of 2026.

How much does the rising U.S. bond yield affect holders of Thai corporate bonds?

Ariya Tiranaprakij, Managing Director of the Thai Bond Market Association (ThaiBMA), explained that the sharp rise in U.S. bond yields, particularly the 10-year yield exceeding 5% and the 30-year yield approaching 6%, is mainly due to inflation pressure, U.S. public debt issues, and large-scale fundraising by major technology firms (Hyperscalers) to support AI growth.

ThaiBMA's research found that a 1% (100 basis points) increase in U.S. bond yields results in only about a 0.43% (43 basis points) rise in Thai bond yields.

In the first nine months of 2026, the 10-year Thai government bond yield rose just 71 basis points to 2.37%, the 2-year yield increased by 26 basis points to 1.39%, and the 5-year yield climbed 52 basis points to 1.80%, while U.S. bond yields rose more sharply.

This has caused the yield spread between 2-year Thai and U.S. bonds to widen to nearly a historic high of about 3.5%, and the 10-year spread to nearly 3%.

Meanwhile, the credit spread of Thai corporate bonds over Thai government bonds, averaging 1.80% yield, remains at its lowest level in six years, keeping the cost of issuing corporate bonds relatively stable. At the end of Q3/2026, the offered interest rates for 5-year long-term bonds were as follows:

• AAA credit rating averaged 2.06%.
• AA credit rating averaged 2.45%.
• A credit rating averaged 2.71%.
• BBB+ credit rating averaged 4.19%.

Although investors perceive global interest rates as rising, high-quality Thai corporate bonds continue to be well received due to strong investment demand and abundant liquidity in Thailand's financial markets.

Therefore, despite some increases in Thai bond yields following global market trends, investors maintain confidence in the credit quality of Thai bond issuers, especially large firms with high credit ratings, so the private sector's funding costs have not increased significantly with global bond yield rises.

However, most market participants expect the Bank of Thailand to keep the policy rate at 1.00% for the rest of 2026, with 5- and 10-year Thai bond yields remaining near Q3/2026 levels by the end of Q4/2026.

Specifically, 5-year bond yields are expected to trade within 1.77% to 1.86%, and 10-year yields between 2.33% and 2.47%. Key factors include Thailand's policy rate direction, interest rate trends in major economies, and government funding plans.

Summary of the Thai bond market situation in Q3/2026

Despite internal and external pressures, the Thai bond market expanded by 2.9% compared to the end of 2025, with outstanding value reaching 18.4 trillion baht by the end of Q3 2026.

Growth was mainly driven by government bonds, the primary channel for public sector funding, while high-credit private sector issuers met their bond issuance targets, reflecting strong liquidity and domestic investor support in Thailand's financial system.

The Thai Bond Market Association (ThaiBMA) summarized key figures and market trends for the first nine months and Q3/2026 as follows:

• Outstanding bond value totaled 18.4 trillion baht, up 2.9% from end-2025, equivalent to 97% of GDP, with government bonds accounting for 55%.
• Outstanding private sector bonds stood at 4.5 trillion baht, down 0.7% from end-2025, with declines in real estate, commercial banks, and telecommunications sectors due to project slowdowns and shifts to overseas funding.
• Private sector bond issuance in the first nine months of 2026 totaled 629.662 billion baht, a slight 1.6% decrease from the same period last year. Q3/2026 issuance was about 220 billion baht, down 8% from Q3 2025's 240 billion baht. The top three sectors issuing bonds were energy, finance and securities, and real estate.

In Q3/2026, foreign capital saw a net outflow of 39.309 billion baht from the Thai bond market due to Middle East conflict concerns, resulting in a net foreign sale of 9.21 billion baht over the first nine months. Notably, most outflows were from short-term bonds, while foreigners continued net buying of long-term government bonds exceeding 25 billion baht.

Foreigners now hold a cumulative 910 billion baht in Thai bonds, about 5% of the market, with the average remaining maturity of Thai bonds they hold extending to 8.4 years from 8.1 years at end-2025, indicating that foreigners still view Thai bonds as a safe haven.

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