Bond outlook

Some refer to the results of global stimulus policies and some try to use many better-than-expected economic indicators to boost investor confidence in order to support their forecasts.

However, those economic figures can't lead to the conclusion that the global crisis has definitely bottomed out.

As long as the twin deficits in the US, which are the cause of the world economic crisis, haven't been solved, it's hard to guess that the world economy is in an expansion cycle.

In the past month, the bahtdenominated bond yield with tenors of a year or more moved up about 44-113 basis points to 1.5-5.4 per cent.

US treasuries with tenors of two years or more were marked up 26-60 basis points to 1.19-4.5 per cent in line with the higher oil and commodity prices in the global market.

Psychologically, rises in oil and commodity prices always arouse the worry of investors over inflation while the jump in government bond yields can be a crystal ball reflecting this expectation.

Consequently, higher inflation expectations push up the financial cost of investment.

The multiplier effect from government spending seems blunted because inflationary pressure not only erodes consumer purchasing power but also dampens investor motivation.

We can't deny that both consumption and investment are the most important variables to drive GDP while exports remain unreliable.

In this unclear situation, it is difficult for investors to manage their portfolios along with higher inflation and it is futile to wait for interest rates to head back up in the near future.

Fortunately, investors still have some hope from the extraordinary session of Parliament to approve a borrowing bill for Bt400 billion.

The Finance Ministry is going to issue stepup savings bonds worth Bt30 billion with a fiveyear maturity.

The first twoyear interest rate is expected to be higher than the market rate and will increase in the third, fourth and fifth years.

Investing in the stepup savings bonds is a good alternative in the current situation where riskaverse investors can get higher returns than bank deposits.

The savings bonds also tend to catch up to higher inflation as well.