The Bank of Thailand (BOT) will reduce the frequency of its bond issues starting this quarter in the hope of boosting trading liquidity in the secondary bond market.

Two-year bonds will be auctioned once a quarter instead of once a month, beginning with bidding on May 15. One-year bonds will be opened for bidding once a month instead of twice a month, starting in September.

The rescheduling is in line with international standards, which are also followed by Australia's central bank.

But the total amount of the BOT bonds to be issued each year will remain unchanged.

The issue of debt instruments in other maturities, such as bills, will continue to have no exact issuing timeline.

An official from the central bank's Financial Markets Operations Group said stretching out the bond issues would not impact the yield curve much but would help stimulate the secondary market, because investors would not want to wait for the primary market.

Generally, movements in the yield curve depend on expectations of interest rates and supply and demand in the market.

"With the changed schedule, the price discovery process will improve.

"The new schedule will still depend on liquidity and demand in the market. Some lots are issued to replace maturing bonds," the official said.

The BOT will not face any problems with its management of liquidity in the financial system, because it can still issue bills anytime or use other options, such as repurchases and foreign-exchange swaps, she said. The central bank continues to cooperate with the Finance Ministry in the timing and

maturity of the ministry's bond issues.

The ministry has issued

bonds with terms of five years or more.

The official said the flood of BOT bonds hitting the market since the beginning of last year has helped whip up trading activity in the secondary bond market. At the end of last year, central-bank bonds accounted for 50 per cent of total volume and 25 per cent of total outstanding value in the secondary market.

Since January 2006, the central bank has gradually reduced issues of one-year bonds from four tranches a month to two and finally one currently, while one-year bonds went down to twice a month and two-year bonds to once a month. As a result, the size of each lot has increased to between Bt50 billion and 70 billion.

The BOT has pursued bond issues as a liquidity-management mechanism since February

2003.

Anoma Srisukkasem

The Nation