Bond trading value up in July

The yield for shortterm bonds (under three years) was down between 30 and 70 basis points, while mediumterm bonds (three to 10 years) shifted down 75 to 85 basis points and longterm bonds moved down by 60 to 85 basis points. Notably, the benchmark bond yield, LB133A, kept down to 4.7 per cent from 5.59 per cent and LB183B last executed at 5.11 per cent - up from 5.95 per cent since the begin¬ning of July.

The Monetary Policy Committee (MPC) of the Bank of Thailand decided to raise its policy interest rate by 25 basis points from 3.25 to 3.5 per cent on July 16, as broadly expected. The MPC noted that the main factors behind rapidly escalat¬ing inflation were still fuel and food prices that sent negative impacts to other goods and services, such as diary products, consumer goods and transportation costs. Indicators of inflation expectations have also risen, making it likely that inflation will remain elevated for a while.

The MPC deemed that the risks to inflation had risen markedly, which will affect private sector con¬fidence, making it increasingly dif¬ficult to ensure economic stability, and impact potential growth as well as the competitiveness of the econ¬omy in the long run. The MPC's statement, however, did not imply that the monetarytightening poli¬cy would last for the remaining meetings of the year because of concerns over economic growth.

The market has been severe¬ly affected by political insta¬bilities. For instance, the People's Alliance for Democracy has been holding a pro¬tracted demonstration to protest against the government, and there is the increasing possibility of the People Power Party's dissolution if the Constitution Court rules against it. In addition, key Cabinet figures could be dismissed from their posi¬tions. The political factor has com¬pletely destroyed investment senti¬ment, especially for foreigners, caus¬ing net outflows by foreign investors in the Stock Exchange of Thailand of more than Bt890 billion so far this year. The SET was the worst per¬former among regional stock mar¬kets during July, with the index declining more than 10 per cent.

Given the several economic and political drawbacks, consumer con¬fidence in June as regards econom¬ic prospects remained vulnerable, as expected, with the index at 70.8 (71.8 in May), the third consecutive monthly fall. Consumer confidence was hit by rising inflation and con¬tinued political unease.

The industrial sentiment index has also been falling, with May's 71.4 the lowest level since the index start¬ed in 2002.

Meanwhile, Finance Minister Surapong Suebwonglee revealed a stimulus package last month, comprising six measures aiming to alleviate inflationary pressure for Thais, such as a reduction of excise taxes for diesel and gasohol, as well as subsidised water and electricity bills for lowincome families.

Separately, the Customs Department announced a June trade surplus of US$628 million (Bt21 billion) - against $1.295 million in May - with export and import growth at 27.4 per cent and 30.7 year on year, respectively. The yeartodate growth numbers for exports and imports were 23.1 per cent and 33.6 per cent.

As regards the United States, international markets were still impacted by worries over Fannie Mae and Freddie Mac's problems. Both firms supported secondarymortgage market liquidity through buying debt from lenders and owning or guaranteeing home loans valued at about $5 trillion, accounting for nearly half of the overall US market. Government officials and the Federal Reserve recently revealed they would provide liquidity to Fannie Mae and Freddie Mac directly to ease the housing crisis.

The US Federal Reserve also lengthened an emergency lending programme, supplying credit directly to securities firms, which had been established in March during the Bear Stearns crisis. The programme's termination was postponed from this October to next January.

In recent news, the Commerce Ministry revealed the July Consumer Price Index on August 1. Headline CPI was 9.2 per cent year on year, the highest level in 10 years. Core CPI rose 3.7 per cent year on year. The sevenmonth average for headline and core CPI was 6.6 per cent and 2.4 per cent, respectively.