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Bank of Thailand (BOT) bonds accounted for 86.65 per cent of trading value, while government bonds took only 7.15 per cent.

In the local market, inflation continued to be driven up, mainly by energy and food prices. Last month's headline Consumer Price Index (CPI) grew 8.9 per cent year on year, a 10-year high. That figure compared with a consensus expectation of 8.4 per cent and May's figure of 7.6 per cent.

The core CPI was up 3.6 per cent (consensus of 3.1 per cent, previously 2.8 per cent), and for the first time the core CPI rose above the BOT's target range of zero to 3.5 per cent.

The high inflation - particularly in the core CPI - creates a greater chance of the BOT's Monetary Policy Committee increasing its policy interest rate 25 or 50 basis points at its next meeting on July 16.

The yield from short-term bonds of three years' maturity or less was up 50-90 basis points last month, while medium-term bonds (three to 10 years) shifted up 60-97 basis points, and long-term bonds (more than 10 years) moved up 60-72 basis points. Notably, the benchmark bond yield, LB133A, rose from 4.57 per cent to 5.55 per cent, and LB183B increased from 5.38 per cent to 5.96 per cent.

In the US, the Federal Open Market Committee decided on June 25 to keep the Fed-funds rate at 2 per cent despite relatively high inflation in May - headline and core inflation were up 4.2 per cent and 2.3 per cent, respectively.

There are now expectations that the Federal Reserve will start boosting its policy rate next year, in order to sustain economic growth and curb inflation.

Meanwhile, the European Central Bank was expected to hike its policy rate at a meeting yesterday.

In the Thai stock market, foreign investors continued to flee, with huge net sales of almost Bt46 billion in the first half of the year. The departure of foreign investors has been a key factor contributing to the depreciation of the baht over the last couple of months.

The baht was the worst performer in the region compared with the US dollar after a decline of more than 4 per cent in May. Investment sentiment continued to degenerate in Thailand last month, with economic downturn and political instability still playing significant roles.

The Customs Department revealed that May's trade surplus was unexpectedly sound at US$1.3 billion (Bt43.38 billion), compared with a deficit of $1.8 billion in April. Exports grew 21.4 per cent and imports 15.7 per cent year on year.

The key point of this surplus was a decline in imports of energy and capital goods.

For the next fiscal year - October 1, 2008, to September 30, 2009 - the Finance Ministry's Public Debt Management Office plans to issue Bt500 billion worth of government bonds. This sum can be divided into three parts: Bt250 billion to fund the budget deficit, Bt200 billion to refinance the government's existing debts and Bt50 billion for infrastructure projects. The bonds to be issued for next fiscal year will be greater in total than the Bt260 billion worth expected to be issued in the present fiscal year.