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ThaiBMA outlines highlights of bond market in 2013

This year, bond investors have had a tough time coping with the rapid changes in economic conditions.

The bond market has faced several challenges.

Capital flow fluctuations

Since the beginning of the global financial crisis, it has seemed that liquidity from economic-stimulus packages has caused a global imbalance in capital flows. Even though this inflow provided a better investment environment in Thailand's financial market, it has also caused high volatility in investment returns.

From January to April, foreign investors were net buyers of bonds worth Bt160 billion, which resulted in the baht appreciating more rapidly. Government bond yields continued to show a downward trend in the first quarter.

The Fed's QE tapering

Some investors are expected to invest more in bonds, including government bonds, as the bond market has lower risk than the equity market. However, the ambiguity from the US Federal Reserve regarding tapering of its quantitative-easing economic-stimulus package also led to an uncertainty in returns.

The Fed is likely to begin scaling this programme down after the latest economic data generally signalled a recovery.

Global financial markets have fluctuated on concerns over a loss of liquidity, which has resulted in foreign investors unloading bonds worth more than Bt120 billion, causing the yields of government bonds maturing in more than one year to shift up in the range of 30-60 basis points.

Growth of the economy

Gross domestic product has grown more slowly than expected because of weak exports, a slowdown in private consumption and investment and the delay in the infrastructure-spending plan.

As a result, the Bank of Thailand decided to trim the policy rate by 25 basis points in May and again in November, which brought the policy rate down to 2.25 per cent. This contributed to the decline in the yields of government bonds maturing in less than a year of 40-50 basis points, corresponding to the fall in the policy rate.

Bond market performance (Jan-Nov)

Primary market

New bond issuance declined 16 per cent to Bt8.1 trillion year on year, mainly because of a reduction in central bank bill issues, while corporate bond issuance increased 22 per cent, mainly because of an increase in commercial paper issues.

Government debt issues:

_ 47 issues of government bonds worth Bt466 billion

_ 203 issues of state agency bonds worth Bt5.50 trillion

_ 105 issues of state-owned enterprise bonds worth Bt251 billion

Corporate debt issues:

_ 3,875 issues worth Bt1.50 trillion

ThaiBMA's registered bonds (as of November 29):

_ 2,367 issues worth Bt9.05 trillion, up 7 per cent from November of last year

Secondary market

Turnover rose 6.5 per cent to Bt19.80 trillion from Bt18.60 trillion in the same period of last year. Daily trading averaged Bt87 billion.

Non-resident (NR) investors traded Bt2.40 trillion for a share of 12 per cent and were net buyers of B420 billion of bonds.

Net trading of short- and long-term bonds was Bt280 billion and Bt140 billion.

NR holdings as of November 29 were worth Bt720 billion or 8 per cent of total outstanding bonds.

Porpit Yodsang is assistant manager for research and development, Thai Bond Market Association.

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