Bond trade jumps on central bank issues

But private debt offerings fall 78%

DARANA CHUDASRI

Daily bond trading in the first quarter jumped 161% from the same period last year thanks to a flood of new issues by the Bank of Thailand as part of its efforts to intervene in the currency markets.

New bond issues in the first quarter totalled 1.533 trillion baht, up from 623 billion in the same period last year, said Nattapol Chavalitcheevin, the president of the Thai Bond Market Association.

New central bank issues in the first quarter totalled 1.001 trillion baht, accounting for two-thirds of all new issues and compared with just 219 billion in the first quarter of 2006.

Mr Nattapol said the central bank bonds were intended to absorb excess liquidity in the money markets, but did not represent genuine demand.

In fact, private issuers floated only 10.3 billion baht in new debentures in the first quarter, down 78% year-on-year. New state enterprise debt instruments declined 22% to 15.26 billion baht.

Mr Nattapol said the heavy growth in the market in the first quarter did not represent genuine demand, but was rather influenced by the central bank's market operations.

Private issuers floated only 10.3 billion baht in new debentures in the first quarter, down 78% from the same period last year. New state enterprise debt instruments meanwhile totalled 15.26 billion baht in the first quarter, down 22% from the same period last year.

''The result of the central bank's heavy issuance was that the yield curve dropped considerably, by 83 to 123 basis points if compared with last December,'' Mr Nattapol said.

''The downward slope of the yield curve also suggests an economy in recession. We'd like to see the central bank slow its new bond issues and cut interest rates.''Bond yields yesterday dipped slightly in anticipation that the central bank's Monetary Policy Committee will cut its benchmark rate, now at 4.5%, by as much as 50 basis points when it meets today.

Yields fell across the curve, with three-year government bond yields off 1.16 basis points to 3.76667%, the five-year yield down 1.77 points to 3.88758% and the 10-year yield off 7.29 points to 4.13391%.

Mr Nattapol noted that the Dec 18 capital controls had also had an impact on the bond market in the first quarter, with non-resident trading accounting for less than 2% of daily trade. Dealer-to-client trades now represent less than 1% of total trade from around 5% last year.

But he said that declining interest rate trends and legal amendments to allow the central bank to accept interest-paying deposits would help reduce the need to issue central bank debt, allowing the yield curve to return to normal.

He said falling interest rates should also help encourage new private issues, particularly as companies look to refinance existing debt. The ThaiBMA estimates that new private issues this month alone will total 27.4 billion baht.

Bangkok Post

Last Updated : Wednesday April 11, 2007