The Thai Bond Market Association (ThaiBMA) has urged the Bank of Thailand (BOT) to reduce its planned bond issuce after its bonds worth Bt1 trillion issued in the first quarter distorted short-term yields.

ThaiBMA president Nattapol Chavalitcheevin said bonds with a maturity of less than one year were now yielding as much as bonds of six to seven years.

"This scenario can be interpreted as a symptom of economic recession. In normal circumstances, the yield curves of longer-term bonds are higher than those of short-term bonds," said Nattapol.

"If the central bank reduces the amount of its bond issue, short-term bond yield should get back to normal late this year."

The Finance Ministry had earlier approved the central bank's request to issue an additional Bt400 billion of bonds to absorb liquidity from the baht intervention, raising bond value to Bt1.5 trillion.

The Bt1 trillion of bonds in the first quarter represented a whopping rise of an annual rate of 357 per cent from Bt218.98 billion floated during the corresponding period last year.

Nattapol said bond yields of all maturities had dropped 80-120 basis points - even further than when the BOT announced the 30-per-cent withholding measure.

He added that although trading volume was up, the trading of foreign investors accounted for only 1 per cent.

In the first quarter of this year, average daily trading volume reached Bt60.3 billion, compared to around Bt30 billion in the same period last year, due mainly to the BOT's bond issue.

Association data indicates the private sector will issue Bt27.4 billion in corporate debentures in April. However, the private sector issued only Bt10.31 billion in debentures in the first quarter. Nattapol said the debenture issue this year would be less than the average of Bt180 billion.

Siam Cement plans to issue Bt15 billion in debentures this month. Toyota Leasing (Thailand) will issue Bt3 billion and Krung Thai Card Bt2.5 billion.

Bond issues in the first three months totalled Bt1.53 trillion, compared with Bt6.23 billion in the same period last year.

Apart from the BOT's bond issue, government bonds marked growth of 190 per cent from Bt36.5 billion in the first quarter of last year to Bt105.76 billion this year. State enterprises, treasury bills and corporate debentures all posted a drop in bond issues.

The outstanding value in the first quarter was recorded at Bt4.17 trillion, up from Bt3.33 trillion last year.

Piyarat Setthasiriphaiboon

The Nation