Bonds issued by the Bank for Agriculture and Agricultural Cooperatives (BAAC) have reached a record 122 billion baht this year, more than half the combined 190 billion baht issued by all state enterprises.
Bond supply from state enterprises has significantly increased from last year, driven partly by crop pledging schemes, said Ariya Tiranaprakij, an executive vice-president of the Thai Bond Market Association (TBMA).
Bonds issued by state enterprises total about 40 billion baht annually on average.
The BAAC this year became the most active organisation by issuing bonds worth more than 122 billion baht after issuing none in recent years.
Its bonds mature at 1-3 years.
The bank is the funding source of the farm sector, with the rice pledging scheme needing huge funds.
Demand for state bonds or secured bonds guaranteed by the Finance Ministry remains strong, Ms Ariya said.
The bond market has been active this year. Since January, companies have issued debentures worth about 360 billion baht, well above the TBMA's projection of 280-300 billion baht.
The figure for the whole year is expected to be about 450 billion baht.
Commercial banks are also active, issuing about 30% of corporate bonds.
Most need money to prepare for the enforcement of Basel III rules next year, while others need funds for expansion.
"Corporate bond value will set a new record this year. The private sector needs funds for post-flood expansion and as a cushion against the global financial crisis. Low interest rates also support the issues, while demand is huge," said Ms Ariya.
Ms Ariya said foreign investors hold 750 billion baht worth of Thai bonds, declining recently from 787 billion baht. Some have shifted to short-term bonds from long-term ones, but there is no sign of an outflow.
The interest rate cut by 0.25 percentage points to 2.75% this month has spurred activity in the bond market, especially in long-term bonds. The new round of the Finance Ministry's bond of 11.5 billion baht launched yesterday will be the new benchmark for five-year bond returns after the interest rate cut.
TBMA president Niwat Kanjanaphoomin said government agencies and state enterprises will continue raising funds from the bond market to support many projects including infrastructure, water management and others.
If the government plans a budget deficit of 360-400 billion baht next year, it can raise funds through the bond market of the same amount, borrow from the financial market or increase public debt to 50%, which is still relatively low.
Public debt is currently 45%.
The bond market has expanded significantly over the past decade to reach its current value of 8.2 trillion baht. The Stock Exchange of Thailand has market capitalisation of about 10 trillion baht. The combined amount can assure a balanced debt structure and is strong enough to withstand the global financial crisis, said Mr Niwat.
He said the TBMA has proposed the government waive capital gains tax for retail and corporate investors on bond returns and stock trades, which would boost secondary market liquidity.