March rate cut gives medium-sized firms a chance to issue more bonds
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THE Monetary Policy Committee's decision in March to cut the Bank of Thailand's benchmark interest rate to 1.75 per cent, on expectations of lessening people's financial burdens and stimulating the economy, presented a chance for medium-sized companies to
The Thai Bond Market Association’s registered bonds as of March 20 had outstanding value of Bt9.359 trillion. From March 1-20, new bond issuance amounted to Bt448.423 billion.
Transactions between dealers and clients in March were concentrated in asset-management companies, which captured 54 per cent of the market, while foreign investors accounted for 13.3 per cent (Bt160.31 billion) and were net buyers to the tune of Bt7.422 billion.
During March, yields of government bonds declined in the range of -0.01 per cent to -0.26 per cent.
Short-to=medium-term bonds (less than three years) saw a significant drop in yields in the range of -0.22 per cent to -0.26 per cent after the MPC’s unexpected rate cut on March 11.
The MPC voted 4-3 to reduce the policy rate by 25 basis points, from 2 per cent to 1.75 per cent per annum, aiming to support economic recovery after spending in the household, business and public sectors was lower than expectations.
Meanwhile, after the meeting of the Federal Open Market Committee during March 17-18, the US Federal Reserve continued to keep the Fed policy rate constant at 0.25 per cent, while also dropping its 2015 economic-growth forecast from 2.6-3 per cent to 2.3-2.7 per cent.
Judging from the economic conditions, it is likely that the Fed will defer raising interest rates from the second quarter.
US Treasury bond yields decreased by 6-12 basis points during March, which also drove down Thai bond yields.
The year-to-date return from investing in Thai government bonds, as measured by the Government Bond Total Return Index as of March 31, equated to +1.84 per cent, while the return from investing in corporate bonds – measured by the Corporate Bond Total Return Index – yielded +1.46 per cent.
In March, there was a net outflow of foreign capital from the bond market totalling Bt4.963 billion. This major outflow was due to profit-taking after the reduction of the policy rate in the second week of the month.
The year-to-date outflow from the Thai bond market totalled Bt7.159 billion, resulting from a capital inflow in long-term bonds amounting to Bt83 million and an outflow of short-term bonds totalling Bt7.242 billion.
At the end of March, non-resident bond-holding stood at Bt676.285 billion, down 1.05 per cent from the end of 2014.
Kantiros Rangkasikorn is analyst officer, research and development department, Thai Bond Market Association, and can be reached at [email protected] or (02) 252 3336 Ext 355.
