Thailand’s long-tenor sovereign bonds are drawing renewed interest from international investors after a sharp sell-off in October, when the ten-year yield plunged by the most in over two years.

The fall followed the Bank of Thailand’s decision to hold policy rates steady despite widespread expectations of a cut.

The rout, which was the steepest in emerging Asia for the month, was driven by weak auction demand, heavy government debt issuance and fears that the central bank would delay easing.

Yet, as deflationary pressures grow and inflation remains stubbornly low, market participants are now pricing in a stronger chance of future rate reductions, making the long-end of the Thai curve appear undervalued.

“Value is emerging at the long-end,” said Peerampa Janjumratsang, a portfolio manager at M&G Investments in Singapore, observing that foreign investors remain underweight Thai bonds and may accumulate on dips.

Data show that foreign net inflows into Thai debt over the past year totalled just US$1.7 billion, about 0.3 standard deviations below the five-year average.

That suggests more room for fresh buying.

While the economy remains fragile, weak inflation and expectations of policy support make Thai ten-year yields potentially attractive.

Some strategists suggest yields at around 1.7 per cent offer reasonable value should the central bank deliver a 25-basis-point cut.

Nevertheless, risks remain.

A resurgence in inflation, additional government supply of long-dated bonds or further policy inaction could reverse sentiment.

Investors will closely monitor government-debt issuance, inflation trends and signals from the Bank of Thailand before committing additional capital.