Updated 5 Feb-2014




  • What’s new?

    • FX: USD/THB continues to hover at the top decile of its 52wk-range (also a 4-year low), sustained by as the combined impacts of Fed taper, EM volatility and a deteriorating political backdrop.

    • Rates: ThaiGB yields declined with a bullish steepening bias after confluence of factors: Downward growth revisions, benign Inflation, potential BOT easing and diminished likelihood of outsized Fiscal stimulus.

  • What’s next? 

    • FX: THB is biased to weaken further due to the overhang of political uncertainty with the caveat that any signs of breakthrough - e.g. intervention by the military or decisive ruling from the judiciary - could lead to one-off knee-jerk reaction. 

    • Rates: Further downside in yields is limited, particularly in the front-end. Best value is at the belly-long end (5-10yrs). While fresh foreign inflows into ThaiGBs are unlikely anytime soon, outflows have stabilized but remain vulnerable to politics-induced FX volatility.

  • Quick links:


Thailand ThaiGBs

Thailand ThaiGBs

Key political actors

Key political actors

Electoral voting patterns (2011)

Electoral voting patterns (2011)

Democrat Party votes (2011)

Democrat Party votes (2011)

Elections Factsheet (CNN)

Elections Factsheet (CNN)




Politics: Election Day (2 Feb) unlikely to be catalyst for political breakthrough - as Suthep's DP defies PM Yingluck's 'caretaker' Govt. and 3-4 months needed to certify poll results


  • What’s new?: Nationwide parliamentary elections took place (2 Feb), but the opposition's disruptions in southern districts have forced the Election Commission (ECT) to: 1) hold a third round of elections (23 Feb) in districts where 'advance voting' had been disrupted, 2) hold by-elections in districts where candidates were unable to register (timing TBD) and 3) undergo a months-long results verification process, which could ultimately annull the poll results. In certain southern districts, anti-government protesters successfully disrupted 'advance voting' (26 Jan) and prevented candidates from registering to contest at least 28 seats in the Lower House. In turn, regardless of Election Day turnout, the quorum threshold of 475 seats (out of 500) required to form a government will not be achieved - rendering the polls ineffectual and maintaining the pre-election status quo and uncertainty. This would keep PM Yingluck's government in 'caretaker mode' as the DP-led opposition continues to protest and push the courts to - as soon as possible - annull election results (as in 2006, over a technicality).

    • Opposition: A Bangkok "shutdown" has been declared (13 Jan). Ex-PM Abhisit Vejjajiva declared (21 Dec-2013) that the Democratic Party (DP) - and its partners within the People’s Democratic Reform Committee (PDRC) protest coalition - would boycott polls and demand PM Yingluck Shinawatra to resign (as 'caretaker' PM) to make way for an unelected “people’s council” that would “eradicate the influence of the Thaksin regime” and reform the government within “12-14 months’ time”

    • Yingluck Administration: The government has declared a 60-day 'state of emergency' (22 Jan), which gives it wide-ranging powers to detain suspects without charge, to ban gatherings of more than five and censor the media. The government had previously rejected calls to delay the elections – arguing that doing so would be unconstitutional. Instead, Yingluck offered (25 Dec) a “Council of 499 eminent Thais” to be chosen by a group of 2,000 that would operate alongside an elected – not appointed – government.

    • Other actors: Army chief Prayuth Chan-ocha has insisted that the military will not take sides, but he raised eyebrows when he said (27 Dec) that 'the door was neither open nor closed' to a coup. A court has charged Abhisit and DP protest leader Suthep Thaugsuban (in absentia) with murder for a deadly crackdown on Red Shirt protesters in 2010. The Police (perceived to be more loyal to the Yingluck Administration than the Army) has warned Suthep that his arrest could follow - a decision that could backfire if it - in turn - transforms him into a martyr and mobilizes the opposition. The National Anti-Corruption Commission (NACC), Thailand’s corruption watchdog, is pressing charges against 308 lawmakers (223 from the PT party) who it claimed acted illegally by supporting a bill that would have made the Senate (the parliament's upper house) an all-elected body. More recently, the NACC is reviewing whether PM Yingluck neglected her duty by failing to prevent financial losses in the subsidy scheme benefitting rice farmers - many of who have begun to rally and block roads to demand overdue payment for rice crop pledged under the scheme.

    • Human casualties: As of 1 Feb, 10 people have been killed and 584 injured since protests began on 31 Oct, according to Bangkok Emergency Medical Services. After a policeman was shot (26 Dec), the Election Commission urged the government to postpone elections - a call that was dismissed by Yingluck Govt.

    • Markets: Five-year CDS reached 158bp (17 Jan) - the highest since Jun-2012. Since 31 Oct, 5yr CDS has risen +53bp.


  • What’s next?: The DP is likely to continue discredit the election and the administration. The risk of further violence could intensify, which would heighten the possibility of a military coup and/or intervention from the courts. Facing existential and legitimacy questions, the Yingluck administration could try to diffuse tensions through democratic institutions, while trying to avert a further escalation in violence. The most market-friendly - if not least likely - outcome is a breakthrough scenario in which the Yingluck Administration counters the opposition’s recent momentum gains by offering a middle ground post-elections, though at the cost of substantial political capital.

    • We attach a two-thirds probability that the Yingluck Administration will no longer be in power by Dec-2014. This can either happen out of the initiative of the DP – with help from third party institutions (e.g. anti-corruption commission, courts, military or King) – or from the Yingluck administration if it capitulates and negotiates an agreement with the DP that includes significant concessions. Given current tensions, the latter is very unlikely. The DP is more likely to win some form of legitimacy through either the military (if violence escalates) or the judiciary (historically, judges have ruled favorably - e.g. in 2006, a court verdict found Thaksin’s TRT party guilty of election violations and invalidated the results of the Apr-2006 elections boycotted by the DP). Intervention from the King is more likely only if protests turn violent, though Abhisit’s murder charge (and current trial) is a clear disincentive for Yingluck to sign-off on a harsh crackdown despite provocations from DP protesters.

    • We assign a one-third probability that the Yingluck Administration survives into Dec-2014. Survival will depend crucially on striking a political compromise with the opposition - the chance of which is tenuous at best. Still, the Yingluck administration could revise its proposed “council of 499” to ensure that the opposition are well represented. A risky - but plausible - move could involve the arrest of Suthep, who has been warned to surrender (2 Feb) and has an outstanding warrant for his role in the 2010 crackdown on Red Shirt protesters. However, PM Yingluck's biggest - yet largely unused - weapon are the legions of UDD Red Shirt constituencies who could be mobilized by the prospect of judiciary or military intervention.


  • How'd we get here?: After opposition DP MPs resigned en masse (8 Dec), PM Yingluck dissolved the For Thai (PT)-controlled parliament (9 Dec) – triggering a poll whose date 45-60 days later as set by royal decree. Though the first two years of Yingluck’s government had been relatively smooth, protests erupted in Nov-2013 when her party tried to push through an unpopular amnesty bill that would have exonerated her brother ex-PM Thaksin Shinawatra from a 2008 graft conviction (and 2yr jail sentence) that he says was politically motivated. The blanket amnesty bill would have also spared hundreds of officials – on both sides – from prosecution and jail terms. Protests began on 31 Oct-2013, led primarily by the opposition DP, which – despite their support in Bangkok (and among the royalist “old guard” elites, technocrats and retired military) – remain an electoral minority nationally and has boycotted elections in the past (Apr-2006). The DP claim that Thaksin and his relatives/associates have entrenched themselves in government to plunder the country for their benefit and buy off the poor with wasteful populist measures (e.g. cheap healthcare, microloans and rice subsidies). The polarization of Thai politics reflects deep-seated divisions in society: urban elites vs. agrarian poor, Bangkok vs. rural Northeast, royalists vs. populists. The current situation is the latest in an 8-year saga set off by the 2006 military coup against Thaksin, who remains in self-exile in Dubai.

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Growth: Political uncertainty weighs on growth as downside risks materialise


  • What’s new?: Growth trends are surprising lower (3Q13: 2.7%, 2Q13: 2.9% yoy). In its 22 Jan-2014 MPC, the BoT revised lower its 2014 growth outlook from 4.2% to 3%, citing short-term political risk to growth, subdued public investment and weaker-than-expected export performance. The Fiscal Policy Office (FPO) said (27 Dec) that growth will hit 2.8% and 4% in 2013 and 2014, respectively. There is evidence that political disturbance is affecting economic activity, particularly in tourism (a key export sector) and investment (3Q13: -6.5% yoy). During the first two weeks of Dec, there were 300k less travelers (-8% vs. expected). Tourism receipts are particularly important in the context of a widening trade deficit (USD1.8bn in Oct-2013). Expectations for government spending and investment - public and private - are being scaled back as the THB 2trn ($68bn) infrastructure project is (indefinitely?) awaiting parliamentary and constitutional approval. Recently, Toyota, the largest auto maker in Thailand, indicated it might reconsider plans to invest USD 600m to expand manufacturing.

  • What’s next?: There is scope for tourism to decline – and trade gap to widen – further through February. In 2014, the Tourism Council of Thailand (TCT) sees more visitors (30m vs e27m in 2013) and revenues (THB 1.35trn, or +18% yoy) predicated on no eruption of political violence. So far, DP protesters have assured that occupation and closure of Suvarnabhumi Intl (BKK) – as occurred in 2008 by their “Yellow Shirt” predecessors – would not be repeated.

  • How'd we get here?: Growth momentum has already been slowing prior to the aggravation of political disturbances. Manufacturing output has contracted the last 7 months. Tourism directly employs 2m Thais and brought in 22m visitors (2012). Its direct and indirect contribution to GDP amounted to $28bn (7.3%) and $64.3bn (16.7%), respectively, in 2012.

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Monetary policy: After pausing in Jan-2014, BoT weighs need for further rate cuts


  • What’s new?: In its latest MPC meeting, the BoT decided to keep rates on hold at 2.25%, by a narrow vote of 4 to 3. This decision followed a surprise rate cut in Dec-2013, citing downside risks to growth. 

  • What’s next?: The BoT meets next on 12 March, when it may opt for a second rate cut given downside risks to domestic demand. The MPC may decide to keep rates on hold if currency weakness becomes excessive. 

    • Forecasts: Siam Commercial Bank (1.75%, 1H14), CIMB Thai Bank (2.00%, Mar-2014)

  • How'd we get here?: The BoT is particularly sensitive to growth risks. Some factors that could dissuade the BoT from future rate cuts include: capital outflows from a weakening baht and high household debt (~80% of GDP partly due to the government's tax refund scheme for first-time car buyers). The BoT has a core CPI target of 0.5-3.0%.

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  • Foreign positioning and redemptions: In spite of Fed tapering and currency volatility, foreign holdings in Thai bonds have remained relatively stable at THB 700bn (as of 24 Jan-2014), according to the TBMA. During 1-24 Jan-2014, foreign holdings declined THB 10bn, as many investors opted not to rollover maturing debt. Short-term and long-term bonds account for 13% and 87%, respectively. Foreign investors hold 11-12% of bonds outstanding. Given that foreign positioning is 10X what it was in 1Q11 (THB 70bn), foreign redemptions are worth monitoring. The TBMA expects foreign investors to sell at least THB 100bn in local bonds in 2014. In 2013, net foreign purchases were close to zero after posting the following quarterly purchases: +THB 141bn (1Q13), -THB 78bn (2Q13), -THB 2bn (3Q13) and -THB 63bn (4Q13).

    • During the period 31 Oct-2013 till 20 Jan-2014, global funds have sold USD 2.8bn and USD 1.4bn in Thai stocks and bonds, respectively. The baht has fallen 5.1% in the period and USD/THB touched 33.15 on 6 Jan-2014 (the weakest since 2010), while the SET Index has dropped 10%.

  • Fiscal policy: With policymaking at a standstill, new initiatives are unlikely to be introduced. BoT Gov. Prasarn said (1 Feb) that while the likely political vacuum over the next 6mths would most impact public investment, not normal budget spend. The political situation leaves a Two issues garner attention: Rice subsidies and infrastructure.

    • Critics cite the rice subsidy program – launched in 2011, which buys rice at 35-50% premiums above market rates at 2-year cost of THB 670bn ($21bn) – as an example of PM Yingluck’s rural patronage. The program is estimated to have cost taxpayers USD 21bn in the past two crop years starting Oct-2011 and accumulated annual losses of THB 200bn (USD 6.1bn), according to estimates from the World Bank. The Public Debt Management Office (PDMO) has began the process of bridge-loan auctions (29 Jan-2014) to repay farmers who have pledged approx. THB 190bn for the October-February crop period, according to the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) that handles payments to farmers, but commercial banks have so far declined to lend the government money (WSJ, as of 4 Feb).

    • Second, the fate of PM Yingluck’s proposed THB2trn-infrastructure bill (currently under review by the Constitutional Court) is significant given the size of stimulus and debt stock implications. The court is unlikely to rule until March (or later if elections are delayed/cancelled).

    • The government has a plan to balance its budget by 2017 and keep public debt below 50% of GDP (current: THB 5.4trn, or 45.3% of GDP, as of Nov-2014).

  • Bond supply: For 2014, the TBMA estimates THB 500bn in gross government issuance and THB 400-450bn in corporate and state-enterprise issuance - comparable to 2013, for both.

  • FX policy: BoT may intervene to defend the THB.

  • Equities: Investors pulled $6.2 billion from Thai equities in 2013.

  • Foreign policy: The international community has so far towed the US line calling for democratic process to be respected. American and Japanese diplomats have been telling politicians on all sides that Thailand’s frail democracy and its economic prospects should not be held hostage by an angry minority.

  • Financial system: Fitch has the banking sector on "negative" credit watch citing that anti-government protests is raising the likelihood of asset-quality pressure at the banks. Fitch notes that the financial system's vulnerabilities have risen because it is more highly leveraged than before - adding that the household sector's indebtedness has risen sharply to 80% of GDP in 3Q13 (vs 60% at Dec-2009).




  • Government

    • Bank of Thailand: Home, ...

  • Thai Bond Market Association (TBMA)

  • Thailand Development Research Institute (TDRI)

  • World Bank: Economic Monitor (2012), ...




News Scan ("Thailand")



Recent News

  • Thailand's opposition seeks to nullify weekend elections (WSJ, 4 Feb)

  • Factbox - Thailand's elections in numbers (Reuters, 1 Feb)

  • Thailand's Political Crisis: No end in sight (The Economist, 31 Jan)

  • Thailand's Troubled Democracy (Bloomberg, 30 Jan)

  • INSIGHT-Thailand braces for violence as PM Yingluck's charm runs out (Reuters, 29 Jan)

  • Five questions you want answered about Thailand's political tumult (Christian Science Monitor, 27 Dec)

  • Outflows could weaken baht to 34 per greenback next quarter: KBank (The Nation, 26 Dec)

  • Profile on PM Yingluck: "Yingluck Shinawatra's tears divide Thailand" (FT, 13 Dec)

  • Q&A: Thailand elections - what does the opposition want? (FT, 10 Dec)

  • Turmoil in Thailand: Key players (WSJ)



What do others say? Selection of remarkable quotes + views from commentators worth following:



  • "Elections are the only means to give Ms. Yingluck legitimacy [which also means that antigovernment protesters would likely try to continue blocking tactics]. The deteriorating economy and the public will put pressure on the government to consider some kind of reform or compromise." - Somchai Pagapasvivat, independent commentator and scholar (WSJ, 2 Feb)


  • "Yingluck will look weaker and weaker, heading a caretaker government with decreasing authority to govern, more vulnerable to the charges against her as the Bangkok blockades become unbearable" - Thitinan Pongsudhirak, an expert on Thai politics at Chulalongkorn University (Reuters, 1 Feb)


  • "The risk of another military coup is growing given the bleak prospects for a negotiated solution ... [Stability] and democratic governance are being undermined at a particular inopportune time from a market standpoint” - Nicholas Spiro, Spiro Sovereign Strategy (Bloomberg, 20 Jan).


  • "The anti-Thaksin camp is trying to push the government to the brink of creating a power vacuum and so an unelected government can take over. The real objective here is not about the need for reform, it's to break the Thaksin regime" - Kan Yuanyong, Director of the Siam Intelligence Unit think-tank (Reuters, 26 Dec)