Bond market shrinks as investors mull quality

Thailand's corporate bond market contracted during the first five months of 2026 as investors became increasingly selective amid concerns over credit quality, higher funding costs and a fragile economic outlook.

According to Kasikorn Research Center (K-Research), the value of long-term corporate bond issuance totalled 337 billion baht between January and May 2026, down 3.7% year-on-year.

The decline reflects growing investor caution following several high-profile bond defaults in recent years, as well as continued uncertainty surrounding geopolitical developments, Thailand's subdued economic growth, and elevated bond market yields, said the think tank.

The slowdown has prompted companies to adopt a more conservative approach to fundraising. New issuance has been concentrated in investment-grade bonds, defined as securities rated BBB- or higher, which accounted for roughly 95% of total issuance or 321 billion baht.

Despite the weak start, K-Research expects Thailand's corporate bond issuance in 2026 to reach 850-890 billion baht, on par with last year and close to the forecast of 900 billion by the Thai Bond Market Association.

"Corporate borrowers are expected to remain active in refinancing maturing debt and securing working capital, although volatility in bond yields will continue to influence issuance decisions," noted K-Research.

DEFAULT RISK CONCERNS

Market data suggests investor concerns remain concentrated in the high-risk segment rather than spreading across the entire bond market. Demand for investment-grade bonds remains strong, with subscription success rates exceeding 96% of offered value, reflecting investor preference for issuers with solid financial positions and credible repayment capacity.

In contrast, high-yield bonds, including those rated BB+ or below as well as non-rated bonds, continue to face significant fundraising challenges. Subscription rates for these securities have fallen below 60%, "underscoring lingering concerns about default risks and financial stability among weaker issuers", noted K-Research.

The trend highlights a growing focus on credit quality, resulting in capital flows being directed primarily towards financially strong companies while riskier issuers face higher financing costs and limited market access, said the think tank.

Funding conditions have also become less favourable. Thai government bond yields rose in line with global bond market trends and increased domestic government borrowing. As a result, yields on three-year corporate bonds across all major credit ratings, comprising AAA, AA, A and BBB, have risen by 10-18 basis points compared with the end of 2025.

"The increase in borrowing costs led some companies to postpone bond offerings or raise funds only when necessary," said K-Research.

FLIGHT TO QUALITY

The centre said the biggest risk facing the market is not widespread contagion, but the refinancing ability of weaker issuers, particularly those that previously underwent debt restructuring. Bonds experiencing debt servicing problems account for 2% of total outstanding corporate bonds. Of this group, roughly 0.2% are already in default, while 1.8% have undergone debt restructuring.

Although restructuring eased short-term liquidity pressures, it does not eliminate credit risk. K-Research estimates restructured bonds worth roughly 4.9 billion baht will mature in the second half of 2026, followed by 12.9 billion baht in 2027.

If issuers fail to restore their financial strength, these bonds could face renewed repayment difficulties. Investors should monitor upcoming maturities among high-yield and non-rated issuers, especially those with fragile balance sheets, weak cash flow recovery, or limited access to new financing, said K-Research.