BEARISHNESS EXTENDED IN THAI BOND MARKET

       Bearishness persisted in the Thai bond market last month with two- and 10-year government bond yields rising by abo7ut 20 and 40 basis points, respectively.
       A combination of selling by foreigners and a lack of demand from local players drove the sell-off over.
       The primary market has displayed a mixed performance. The Bt13-billion, five-year (LB155A) auction in October returned a moderate bid/cover ratio of just 1.41 times, reflecting soft demand.
       However, the longer-tonor B3-billion, 30-year (LB406A) and B7-billion 20-year (LB24DA) auctions performed better with their bid/cover ratios coming in at 3.38 times and 2 times, respectively.
       The Bank of Thailand's economic report for September - released at the end of October - showed that economic conditions continued to improve from the previous month along with increased private and public spening, as well as a pick-up in external demand.
       The central bank also noted that exports had contracted in year-on-year terms, but at a decelerating rate. Meanwhile, manufacturing production increased, both for domestic and overseas markets.
       However, private investment remained subdued as producers' excess capacity could accommodate the increase in demand.
       Even though we do not expect the Bank of Thailand to hike its policy rate through next year, bond sentiment should remain bearish in the near term.
       Investors are reluctant to add long bond positions at this juncture given that regional central banks have been hawkish, with the Reserve Bank of Australia hiking by another 25 basis points on Tuesday to 3.5 per cent.
       There is a lack of demand for bonds from local investors with most players favouring to keep duration short and exposure limited ahead of year-end.
       Foreign investors have also generally been on the sell-side, paring positions in the local bond market.
       DANNY SUWANAPRUTI is a rates strategist for Standard Chartered Bank in Singapore.