A different take on short-term prospects for the Thai bond market
By Jon Fernquest |
A Reuters article published out of Hong Kong in Today's Bangkok Post gives an alternative perspective on prospects for the Thai bond market after the removal of capital controls.
Here is the full article:
BOND MARKET
Bond oversupply possible
(Friday March 07, 2008)HONG KONG : Foreign investors are eager to invest in Thai local currency bonds because of higher yields and a strong currency, but concerns about a flood of new supply and rising inflation will temper some of that enthusiasm.
Short- and medium-dated bonds will be preferred over longer bonds as overseas investors prepare to return after the Bank of Thailand last Friday removed the capital controls it imposed in December 2006 to rein in the rise of the baht.
Bond markets expect foreign participation to rise once again after it had fallen to 2% of trading from 30% before the curbs were imposed.
"Foreigners who are underweight [against] the benchmark are looking to add exposure to the bond market and the forex market as well," said Danny Suwanapruti, a strategist with Standard Chartered Bank. "Two things are driving this - the strong currency and rate-cut expectations."
The baht has risen 6.5% against the US dollar so far this year and is among the best performers in the region. That follows a 7% rise last year and a near 14% increase in 2006.
"Thai bond yields look quite attractive compared to Singaporean and Taiwan yields," said Vasu Suthiphongchai, fund manager with Asset Plus Fund Management.
The most liquid part of the bond maturity spectrum - the two- to five- year segment - is favoured on hopes there could be rate cuts.
Citigroup's Nithi Wanikpun predicts aggressive rate cuts in Thailand to prevent the baht from appreciating further as well as to revive the domestic economy. Citigroup is predicting a policy rate of 2.5% by year-end in Thailand.
But Thailand's annual inflation rate, stoked by oil and food prices, spiked to a 20-month high of 5.4% in February, decreasing the likelihood of an immediate rate cut. REUTERS
(Source: Bangkok Post, business section, page B2, Reuters, temp-link)
Vocabulary:
a different take on Y - a different explanation and opinion on Y
the yield of a bond - the interest rate of the bond, the annual income from a bond expressed as a percentage of the current market price of the bond, the annual coupon of the bond divided by the market price of the bond (See The Economist glossary)
flood of new supply - sudden increase in supply
temper - make less extreme
enthusiasm - being excited about an activity and having great energy and eagerness to do it
temper some of that enthusiasm - reduce excitement about something
rein in the rise of the baht - reduce the speed of the baht's increasing value (appreciation) or stop it entirely
curbs (noun) - controls and limitations (See glossary)
impose - useing your authority to force people to accept something
curbs were imposed - when the government makes a regulation or law that controls or limits an activity
a benchmark - a known quantity against which other things can be compared and measured (in US financial markets a bond with a three month maturity, the US government "Treasury Bill" or "T Bill" fulfills the function as a riskless benchmark) (See The Economist Glossary on Treasury Bills)
underweight [against] the benchmark - need to put some of their investments funds in a risk free bond like T Bills
exposure - the amount of risk one takes by holding an asset that could decrease or increase in value or not increase as much as other similarly priced assets
add exposure to the bond market and the forex market - need to move some of their investment portfolio into bonds and foreign currencies
X driving Y - X causing Y
rate-cut expectations - how much people expect an interest rate cut by the Bank of Thailand
bond maturity - the time when the money borrowed with a bond is repaid, the end of the bond (See Wikipedia on maturity in finance)
a spectrum of Y - the full range of different kinds of Y
the bond maturity spectrum - the full range of bonds from the shortest maturities of three months to several years
most liquid part of bond maturity spectrum - shorter maturity bonds, in general the percentage per year that can be earned increases with the length of time that the money is invested, yields rise as maturity lengthens, this is a normal yield curve
aggressive rate cuts - when the central bank makes very large reductions in interest rates usually to stimulate the economy
revive the domestic economy - increase economic activity, bring the economy out of the economic slowdown
X stoked by Y - X made stronger by Y
spiked to a 20-month high - increase suddenly and quickly to a new high level above past levels (like a high mountain peak)
