The Bank of Thailand (BOT) insists that its short-term bond issue is not a cause of the current flat yield curve in bonds, which is instead the result of fundamental economic factors.

Pongpen Ruengvirayudh, a senior director of Financial Markets Operations Group, insisted yesterday that the central bank's short-term bond issue had not pushed the short-term bond yield higher than it should be.

Returns in debt securities depend on supply and demand in the market. For example, a steep-shaped yield curve indicates that markets forecast higher inflation in the future, so they need higher returns in the long run.

"The bond market's yield curve did not move unusually. The flat curve was a result of market mechanisms," Pongpen said.

Earlier, Nattapol Chavalitcheevin, president of Thai Bond Market Association, complained that the central bank's short-term bond issuance has distorted yield curves. The short-term yield was only 0.2 per cent lower than the long-term yield.

Meanwhile, the BOT yesterday opened a bid for floating-rate bonds with maturity of 14 days and three years. Only Bt11 billion of the three-year bonds, of which the coupon rate is 4.41094 per cent, were offered to winners who bid at 4.4-4.41094 per cent.

The bid-coverage ratio was 3.49 per cent, while the amount at auction was Bt20 billion.

Bt15 billion of the 14-day bonds were bid at the rate of 4.504-4.5149 per cent, with a bid-coverage ratio of 4.14 per cent.

The baht yesterday opened at 35.19 against the greenback and moved narrowly between 35.22 and 35.23 per dollar, a little weaker than the rate on Thursday. Pongpen said exporters had continued to sell their dollars for baht.

The currency closed at 35.22/35.25 to the dollar.

As of March 2, the country's international reserves were recorded at US$68.4 billion (Bt2.2 trillion), $700 million higher than the previous Friday. The net forward position was $8.6 billion, $100 million lower than the week before.

Anoma Srisukkasem

The Nation