Thailand FX reserve strength means cheaper borrowing versus ASEAN peers

We've tapped more data from GFI / Fenics to visualize aspects of ASEAN nations' sovereign borrowing. This time, we're comparing the sovereign credit yield -- defined as the spread between a country’s USD borrowing costs and a benchmark safe-haven asset, such as US Treasuries -- to countries' external reserve buffers.

These Southeast Asian nations demonstrate a clear relationship between the price they pay to borrow money with external reserve adequacy -- reflecting investors' sensitivity to perceived balance-of-payments strength.

Economies with higher foreign reserve coverage (as measured by months of imports) typically enjoy tighter sovereign credit spreads; these stronger external buffers reduce perceived default risk. Thailand exemplifies this, maintaining some of the region’s lowest sovereign spreads — often below 100 basis points — when its reserves covered 7–16 months of imports. Its borrowing costs have sometimes risen as coverage weakened. Vietnam, meanwhile, stands out on the left side of our chart, with lower reserves and higher borrowing costs over the past 6 years.

Spreads tend to widen when reserve adequacy deteriorates, either due to rising imports from negative commodity terms-of-trade shocks (such as the Russia-Ukraine war, or the pandemic outbreak -- note the 2020 dots on the right side of our scatter) or from central bank market interventions that reduce currency holdings relative to imports.

We've added two more charts showing the particularly strong correlations in Thailand and the Philippines. Sovereign spreads and reserve adequacy are negatively correlated at -0.5 and -0.7, respectively.

Click here for our dashboard covering inflation dynamics across other major economies.