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Published on April 10, 2008

Despite the recent Korean bonds onslaught, together with the commodity hype by the asset management industry, you would have thought that Thai bonds would be totally eclipsed from the limelight.

But, no, the bonds are still up and about. Thai bonds apparently have not lost their attraction among investors.

This may sound rather silly in the face of heated-up rice and oil prices.

"I found that people I have talked to still prefer the 'known known' [of Thai bonds and bond funds]," said Nattapol Chavalitcheevin, president of the Thai Bond Market Association, a trade association and pricing agency.

With the exception of credit link notes, most Korean bond funds are still at the mercy of exchange rate and interest rate risks. As of last month bonds rose to 5.29 per cent after the new Korean president Lee Myung-bak announced that he would make taming inflation his priority over economic growth, thereby disappointing those who had bet on a rate cut. Fortune reversed on Tuesday, though, when Lee gave his public support for domestic demand, sending yield down to 5.10 per cent.

If that says anything, it means that Korean bonds - not only government, but corporate - have become hot properties. With the exception of UOB Asset Management, all fund management firms seem to be touting their Korean government bond funds at every street corner.

However, Vasu Suthiphongchai, fund manager with Asset Plus Fund Management, thinks that demand for the Korean bonds will eventually peter off. He said the window of opportunity, made possible by the recent credit crunch in South Korea, is narrowing. Korean banks are highly leveraged, he added.

The Asset Plus Institution Dividend Fund is an example of why Thai bonds are still attractive. Although this one has relative small liquidity compared to larger funds, with a fund size of only Bt1.1 billion as of April 8, its past track record is reasonable.

As of March 28, the fund has a 4.88-per cent return since inception.

Today, April 10, the fund will pay dividends of Bt0.14 per unit.

ASP-IDF's duration is actively managed and currently has no less than 70 per cent of its portfolio in government bonds, deposits and state-enterprise bonds.

Because of the yield's tendency to decline, Vasu said that the fund would maintain a duration range of 0.7 to 1.2 years, but he forecast that the interest rate would eventually rise by 50 basis points by year-end, as would core inflation.

Ki Nan Tsui

The Nation