Bond movement in Thailand after ECB announced QE

All of these factors may affect the investment environment. Investors need to be concerned about them and keep an eye on them.

Bonds registered with the Thai Bond Market Association as of January 30 were worth Bt9.30 trillion, increasing 0.1 per cent from the previous month. In December, new bond issuance amounted to Bt9.29 trillion. There were 15 issues from 10 companies of long-term corporate bonds totalling Bt15.48 billion and issues of commercial paper totalling Bt55.20 billion.

Yields of government bonds decreased slightly by 0.05-0.07 per cent for short-term bonds (less than one year of maturity) and 0.06-0.33 per cent for long-term bonds (longer than one year of maturity).

Short-terms bond including T-bills and Bank of Thailand bonds were still attractive to investors, with a bid-to-coverage ratio (BCR) of 1.21-3.56 per cent. As a result, the yields in other bonds also decreased.

On January 22, the European Central Bank said it would launch QE next month at the rate of 60 billion euros per month. The Swiss franc added more than 15 per cent against the euro after the Swiss National Bank removed the euro peg.

The ECB also cut its main interest rate to -0.75 percentage point to ensure that the discontinuation of the minimum exchange rate did not lead to an inappropriate tightening of monetary conditions.

The volatility in global financial markets has induced investors to choose safer assets such as US Treasuries, which lowered the 10-year bond yield from 2.02 per cent month on month to 1.68 per cent. This also affected the Thai bond market. The yield of 10-year government bonds fell month on month from 2.83 per cent to 2.61 per cent.

The return as of January from investing in government bonds, as measured by the Government Bond Total Return Index, was 1.42 per cent, and from investing in corporate bonds, measured by the Corporate Bond Total Return Index, was 0.68 per cent.

Last month, there was a net |outflow of Bt12.10 billion of foreign capital from the bond market, |mostly from long-term bonds (Bt9.23 billion net outflow), while the short-term-bond outflow totalled Bt2.87 billion.

Although there was an outflow in short-term bonds, we found out that it was caused by more bonds maturing rather than net trading.

The economy in the next period will recover, but not aggressively. There is low pressure on inflation because of the decline in commodity prices, while the BOT’s policy rate may stay at the current level for a while, which may not affect the price or yield of Thai bonds much.

However, the QE programme of the ECB may affect the flow of foreign capital in the Thai bond market and the BOT’s decisions on the policy rate in the future.

Kantiros Rangkasikorn is analyst |officer at the research and development department of the Thai Bond Market Association. E-mail [email protected].