According to the Thai Bond Market Association (ThaiBMA), September trading volume in corporate bonds was Bt13.46 billion, compared with Bt8.68 billion in August. However, government bonds remained the most-traded products, with 45.49 per cent of the Bt654.44-billion trading volume.

The average daily trading volume in corporate bonds was up 71.79 per cent to Bt67 million, from Bt39 million in August.

A ThaiBMA researcher said the central bank had boosted the confidence of investors when, on September 6, it left its short-term repurchase rate unchanged for the second consecutive time. Investors shifted from highly secured bonds to corporate debentures.

After raising its policy signal rate 13 times since August 2004, the Bank of Thailand left the rate unchanged at 5 per cent on July 19, then again on September 6, creating the belief that the long rise has reached its peak and the rate has stabilised.

"Investors were more confident in taking higher risks for a higher return in corporate bonds, after the interest rate trend seemed to reach its peak," the researcher said.

At the end of last month, total outstanding government-sector bonds were valued at Bt2.98 trillion, while bonds issued by the private sector totalled Bt764.86 billion.

Many experts believe local interest rates have peaked, and will start to drop next year, and the trend has affected the yield-curve movement of bonds. Those with maturity of more than 10 years have shown a yield-curve drop in the range of 17 to 29 basis points.

Yields are down 16 or 17 basis points for bonds with five- to 10-year maturity, and 15 to 18 basis points for those with one- to three-year maturity. Yields are up and down for bonds with one- to six-month maturity.

Mutual fund business accounted for 43 per cent of overall trading transactions last month, a slight drop from 46 per cent in August.

According to the ThaiBMA, outstanding registered bonds at the end of September totalled Bt3.74 trillion, including Bt158.03 billion in newly issued bonds.

Ayudhya Fund Management's head of fixed income investment, Arsa Indaravijaya, said that for the rest of the year, short-term bonds would remain attractive. However, the trend is likely to shift to longer maturity bonds next year.

"With the country's budget deficit, it is possible that the government may issue more long-term bonds. This will increase the supply in the market. It will be another factor to consider in the year to come," Arsa said.

Piyarat Setthasiriphaiboon

The Nation