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Published on March 7, 2008

Since the Bank of Thailand lifted the 30-per-cent capital-control requirements, non-resident net holdings of Thai bonds have increased to Bt56 billion and are projected to reach Bt70 billion by the end of the year, Nattapol Chavalitcheewin, president of the Thai Bond Market Association said.

Almost a week has passed since the BOT move and the buying frenzy has petered out. The outcome was a decrease in yields across all boards, with five-year bonds taking the biggest drop.

According to statistics from the association, the two most popular bond classes - five-year and ten-year bonds - have seen yields drop by 39 and 25 basis points respectively, to 3.59 per cent and 4.39 per cent on March 3.

What this means for investors, particularly in money markets or bond mutual funds, is that their net asset value will rise, said Kampol Adsavakulchai, SCB Asset Management's executive vice president for the mutual-fund group.

"It is okay for current investors and unit holders, but not for reinvestment. Returns for new fixed-income funds will decrease," he added.

With the new economic stimulus measures looking to increase the government's deficit to 2.2 per cent of GDP at Bt205 billion, according to yesterday's research from Phatra Securities, this might be a good year for companies to start issuing bonds.

Nattapol said the country is in need of "quality bonds".

"It was bad supply. There aren't enough big private companies issuing bonds. They are not coming from the real sector," Nattapol added, saying that besides state enterprises, most companies are joint ventures with Japanese companies, and therefore have the benefit of the low Japanese interest rates.

"These companies with strong Japanese corporate ties can raise money outside Thailand," he added.

As is usual in Thailand, the first quarter was rather quiet for companies, with only Bank of Ayudhya and Siam Cement Group issuing bonds.

Nattapol added that the total bond volume for this year would hover at about Bt100 billion to Bt200 billion. With the 30-per-cent controls revoked, foreign investment will help with liquidity.

The current bond market has an outstanding value of about Bt1.5 trillion with the large majority being short-term papers issued by the Bank of Thailand.

"Outstanding corporate and government bonds to date total about Bt500 billion," said Nattapol, with only Bt200 billion from the private sector.

Meanwhile, the BOT is to issue Bt60 billion of BOT bonds today after already selling Bt165 billion over the past few days.

The central bank will issue Bt225 billion in all for the first week of the lifting of official capital controls.

The issue was aimed at absorbing liquidity in the system after the BOT stepped into the foreign-exchange market to rein in the baht as the Finance Ministry has gradually bought dollars to refinance its foreign debts.

Ki Nan Tsui

Anoma Srisukkasem

The Nation