Bond market weathers Lehman storm

Nattapol Chavalitcheevin said Thai corporations are likely to shift their financing channel from external sources to the domestic market to avoid the possible rising cost incurred from lower credit ratings. The increasing supply would also possibly lead to a rise in the longterm maturity yield curve.

But the shortterm maturity yield curve would dip in response to the policy interest rate, which was expected to be lower to bolster economic growth.

Nattapol said foreign investors had pulled only Bt8 billion out of the Thai market since May, which recorded the highest trading value. The outflows were minimal compared with foreign net sell in the stock market of more than Bt100 billion year to date.

Those who had invested in the domestic bond market currently had low risk as the Bank of Thailand (BOT) was expected to slash the policy interest rate to boost economic growth, he said.

Moreover, foreign investment accounted for only 1 per cent of total trading value. As of last Friday, foreign trading value amounted to Bt83.6 billion.

US financial institutions needed additional US$150 billion (Bt5.1 trillion) to cover their losses totalling $500 billion. Foreign investors would continue to unload their assets abroad in the stock market as well as in commodity and forex markets.

According to Nattapol, the shortterm maturity yield curve had dropped by 25 basis points over the past few days.

He said the shortterm yield curve was likely to drop in line with the BOT policy interest rate. The market expected the central bank to cut the key rate to stir up economic growth amid declining inflationary pressure.

The country's exports could be hurt by global economic slowdown or recession next year while the government's investment projects had been delayed by the prolonged political turmoil.

The president said there was room for the policy rate to decline from 3.75 per cent as it was only 3.25 per cent at the beginning of the year.

"We have internal problems more severe than our neighbouring countries. If megaproject investment had been delayed to next year, economic growth would have been only 23 per cent," he said.

Nattapol said the amount of bonds would increase as the government has planned its biggestever issue of Bt450 billion to Bt480 billion in the next fiscal year, compared with Bt157 billion this year. The corporate sector would turn to the domestic market for finance as they could carry the higher cost.

The rising supply would pull the medium and longterm yield curve up, although demand for the bonds would increase from Deposit Protection Agency and retail investors shifting their deposits out of banks.

So far, this year, corporations issued longterm bonds worth Bt152.1 billion, rising 43 per cent from the first eight months of last year.

In addition, about 25 foreign issuers participated in the market with a combined issue of Bt14.6 billion, increasing 97 per cent from last year.

The central bank remained the largest issuer with Bt5.9 trillion worth of bonds, a 126percent hike from the same period of last year. This indicated excess liquidity in the system.