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Published on November 22, 2007

Investors must therefore thank the sub-prime crisis for increasing the risk assessment of various financial instruments.

The world economy continues to feel the reverberating effects of the sub-prime crisis, with massive write-offs from most major merchant banks that played an important role in popularising these low-grade collateralised debt obligations (CDOs). In a series of bad omens, Freddie Mac posted a US$2-billion (Bt67.76 billion) loss, the Federal Reserve revised down US gross domestic product (GDP) growth from 2.5-3 per cent to an abysmal 1.6-2.6 per cent, and now BlackRock has stepped in to manage the $75-billion fund, set up by Citigroup, Bank of America and JP Morgan Chase. And more bad news looms on the horizon.

Thai Bond Market Association (TBMA) president Nattapol Chavalitcheevin said that although minimal in volume, the Bank of Thailand (BOT) also had Bt1.4 billion, or 7 per cent, of Bt20 billion worth of total investment in sub-prime CDOs.

Speaking to a group of journalists yesterday, Nattapol said he would like to see the TBMA step up its role as the nation's pricing agency for such exotic financial instruments. He said it would be a natural move from its primary duty of providing data on bonds in both primary and secondary markets, which it has been doing already.

Faced with endless financial innovation, the TBMA could provide fair pricing information, for instance, on the securitisation of bonds, a process by which issuers - usually banks - transfer risks from their balance sheets to the debt markets, which has become a much more common special-purpose vehicle.

Chansak Chaiyapoomsakul, manager for bond registration and information services, said the TBMA was also equipped with a range of tools to determine the mark-to-market or fair price for bonds; for instance, delving into sell-buy prices and the financial-engineered models of the instruments.

With the 30-per-cent reserve-requirement measure still in place, US capital, fleeing the sub-prime debacle and with the improbability of a further lowering of interest rates, is unlikely to come into Thailand any time soon. As of now, only 1 per cent of bonds are being traded by foreign institutions, amounting to a net buy of only Bt200 million to Bt300 million so far this month.

Ki Nan Tsui

The Nation