Bond market overview for 2013 and outlook for 2014
January 16, 2014 00:00 By DUANGRUETHAI SUETRONGPRASERT
LAST YEAR was deemed to be relatively volatile for investing in various types of financial assets.
However, for the Thai bond market, it is viewed as having been another good year, witnessing both higher new bond issuance in the primary market and an increasing trading value in the secondary market.
In the primary market, there was about Bt520 billion-worth of government bonds issued in 2013, slightly lower than in the previous year but still in line with the government’s fund-raising plan, while newly issued corporate bonds totalled around Bt420 billion.
Despite the drop in new corporate-bond issuance compared to 2012, most issuers were general firms and not commercial banks, which demonstrates that funding through the bond market has been more favourable for real-sector companies recently.
Moreover, increased newly issued corporate bonds are also another choice for investors.
For the secondary market, daily average trading value went up from Bt80 billion in 2012 to Bt90 billion last year.
The interesting point here is that the Bt10-billion daily rise was caused by increased long-term bond trading from Bt20 billion to Bt30 billion per day, which indicates a change in investors’ behaviour from investing in short-tenor bonds to those with longer maturity.
Turning to investment return or yield, short-term yields shifted down in correspondence with the Bank of Thailand’s policy interest-rate cuts of 0.50 per cent over the course of the year, whereas long-term yields shifted up – as bond prices went down – as a result of foreign capital outflow and rising bond yields in other countries, such as increasing US Treasury yields.
In regard to foreign fund flows, merely Bt2.6 billion of overseas funds left the Thai bond market last year.
Meanwhile, a large amount of foreign capital, almost Bt200 billion, flowed into the bond market at the beginning of 2013 and then started to flow out during the middle of the year due to market expectations pertaining to the scaling down of the US economic stimulus package via quantitative easing (QE).
After that, foreign funds flowed in and out alternately, depending on QE-related news each month. Until the year-end period, there was plenty of foreign capital flowing out again, after it seemed to be more obvious that the US Federal Reserve would taper its QE programme.
However, when taking into account the capital outflow details, it can be seen that most of the funds leaving the country resulted from an expiration of short-term bonds. That said, the non-resident segment was still a net buyer in long-tenor bonds, to the tune of about Bt144 billion last year.
As to the outlook for 2014, the primary market is expected to grow continuously.
There is likely to be more corporate companies’ fund-raising through the bond market in accordance with a recovering Thai economy.
For the secondary market, a major factor tending to have an impact on the investment environment in the bond market is still an international issue, namely, QE tapering in the US, which is anticipated to affect foreign capital outflow in the year ahead.
In addition, Thai economic circumstances are another factor to which we need to pay attention, since this will influence the domestic interest-rate trend. If the economy shows continual improvement, interest rates will be higher, which will in turn contribute to bond yields shifting up afterwards.
However, bond investment remains another interesting choice due to its relatively low risk and attractive investment return. Investing in bonds gradually and consistently will help to reduce the volatility from investing in other types of financial assets, which is evaluated to be probably substantial this year.
Duangruethai Suetrongprasert is an analyst at the Research and Development Department of the Thai Bond Market Association. She can be contacted at Duangruethai@thaibma.or.th or (02) 252 3336 ext 211.