Monetary Policy and Risk-Taking: Evidence from Thai Corporate Bond Markets

This paper examines the risk-taking channel of monetary policy in the context of Thai corporate bond market. Based on newly-issued non-financial corporate bonds from 2001 to the third quarter of 2020, we find that low interest rates are associated with greater issuance of bonds with worse risk ratings, which is more pronounced for bonds from the property sector. In addition, these bonds tend to have longer maturity. However, we do not find evidence of compression of risk premium or underpricing of risks during these low-rate periods. We then examine whether any types of bond investors are prone to the search-for-yield behaviour. Using the Bank of Thailand's confidential debt securities holding dataset from 2013 onward, our results show that individuals, rather than banks and institutional investors, are the prime holder of high-risk bonds. Conditional on bond risk ratings, only two groups of bondholders appear to bias toward higher-yield bonds. These include individuals and other depository financial institutions, namely saving cooperatives and money market mutual funds. Our results point toward weak evidence of risk-taking among corporate bond investors during the low-rate environment.