DEBT MARKET / GOVERNMENT ISSUES

B100bn budget deficit to boost bond issues

PARISTA YUTHAMANOP

The bond market is expected to see significant growth in government issues and types of debt instruments this year. Government bond issuance is expected to grow significantly this year to help finance the budget deficit of at least 100 billion baht for the 2007 fiscal year, as well as ongoing debt restructuring and new mass-transit investments. The Finance Ministry has already announced plans to float 114 billion baht in bonds from January to May.

The Bank of Thailand, meanwhile, plans to issue 500 billion baht in bonds in the first quarter of the year. Total new central bank debt issued last year was one trillion baht.

A central bank official said that among the new issues planned are floating rate notes (FRN). They will be introduced in the first half of the year, the first such issue for the bank.

Despite declining interest rates, regulators expect the FRNs to be well received by certain types of investors.

''The FRN issues will help investors to be more prepared when the private sector increases its own issues and interest rates turn upward,'' the official said.The central bank will close its repurchase market in the fourth quarter of 2007 and shift to a bilateral repo market, under which it would operate through nine primary dealers, the source added.

The central bank has already cut back its daily repo market from two sessions to one, from 9:30 to 10:30 am.

An analyst from the Thai Bond Market Association said a significant increase in central bank issues was partly due to the ''sterilisation'' of proceeds from the its foreign exchange intervention policies.

The central bank bonds are expected to make the markets more attractive, thanks to large supply and short maturities. However, some investors are interested in government bonds due to the lower interest rate trend, the analyst said.

Issues by state enterprises in 2007 are expected to accelerate from 2006.

One analyst said the central bank's FRNs would help educate the market and build a new benchmark against the Bangkok Interbank Offered Rate (Bibor).

Another factor helping the new issue is the fact that views remain mixed about interest rate trends.

Some investors may choose floating-rate notes, instead of long-term fixed-rate instruments, to moderate exposure to fluctuations in market rates.

In a related development, the analyst said bond yields yesterday increased one to five basis points, especially in maturities of seven years up, due to profit taking.

Over the past few weeks, investors had bought heavily as they anticipated the central bank would cut its overnight rate at the next Monetary Policy Committee meeting on Feb 28.

Market sentiment over the impact from the central bank's 30% reserve requirement measure has improved, as no heavy selling took place as expected.

Investors panicked shortly after the central bank introduced the measure, resulting in thin turnover. But lower interest rates have been a positive factor, she said.

Bangkok Post
Sunday February 11, 2007