Bond yields slide after rate hike

The decline in the yield curves reflected market expectations that the interest rate would no longer be higher, said Pongpen Ruengvirayudh, BOT's senior director.

Nattapol Chavalitcheevin, president of Thai Bond Market Association, said the market had forecast that the interest rate would be sustainable at 3.75 per cent until the end of the year as oil and commodity prices have declined.

The interest rate could be lower next year if inflationary pressure eased and economic growth needed to be boosted.

He expected the yield curves would not change significantly from now on, due to balance of demand and supply in the market.

The government plans a Bt450billion bond issue during the next fiscal year to cover its budget deficit. The total amount is higher than ever issued in the past.

At the same time, demand for the bonds are likely to be higher than usual after the Deposit Protection Agency removes its blanket guarantee next year. Many depositors are expected to shift their money from banks to the bond market.

The demand can usually absorb supply when many institutional investors such as the Government Pension Fun, the Social Security Fund and mutual funds put money in the market.

He said the prolonged political turmoil and the continued rise in interest rates have lessened the supply as the corporations have suspended their financing.

Despite political tensions, key economic indicators for July suggested satisfactory consumer spending and investments, Pannee Sathavarodom, directorgeneral of the Fiscal Policy Office, said yesterday.

Farmers still enjoyed high income due to the high prices of farm products. They bought more motorcycles last month, she said. Sales of motor bikes jumped by 16.3 per cent compared with the same month last year. Car sales also rose 27.5 per cent year on year, although that figure marked a slight decline over the June growth number of 29.3 per cent.

Collection of valueadded tax at constant price also increased 23.3 per cent, up from 7.6 per cent in the previous month.

These indicators suggested that  consumption continued to expand, she said.

Investment also showed signs of expansion as tax collected from realestate transactions increased 43 per cent, up from 25.9 per cent in June. Import volumes of capital goods also rose 28.4 per cent last month compared to 8.4 per cent in the previous month.

 Anoma@nationgroup.com