Mutual funds spur growth in trading

Mutual funds spur growth in trading

Trading of long-term corporate bonds in the secondary market continues to increase, driven by customer demand for higher returns from asset management firms, says the Thai Bond Market Association (TBMA).

Outright trading value of long-term corporate bonds totalled 405 billion baht in the first half, a surge from 57.3 billion baht seen in January, according to the TBMA.

An outright trading position is a long or short trade that is not hedged from market risks, with potential gains and risks greater than the hedged position.

Ariya Tiranaprakit, senior executive vice-president of the TBMA, said trading activity in corporate bonds has increased over time, driven by mutual fund companies -- key players in the secondary bond market -- looking for a higher return on investment.

"For many years, mutual fund investors have extended their investment duration for longer and become more active in long-term corporate bonds when the global interest rate outlook is on a downward trend," Ms Ariya said.

The outright trading value of long-term corporate bonds has continued to set records every year since 2012 and surged significantly in 2016, with total trading value exceeding 1 billion baht, including long-term debentures worth 605 million baht and commercial paper worth 452 million baht.

Institutional investors account for 90% of total investors in the secondary bond market, Ms Ariya said, and all their investments are investment-grade debentures with an A- rating for most of them.

In the primary bond market, most investors are individual and high-net-worth investors, she said.

Individual investors account for 31% of total outstanding corporate bond value at 3.6 trillion baht.

As there is higher liquidity in the secondary corporate bond market, the TBMA has initiated a move to place four symbols to provide a notice related to each debt instrument for market participants, effective since July 1.

The symbols are request information (RI), investor caution (IC), default payment (DP) and restructure (RS) and have been appended to corporate bonds' trading symbols.

TBMA president Tada Phutthitada said the secondary corporate bond market is more active than before, causing wider price movement.

Having the symbols in place will equip investors with information for better investment decision-making, he said.

"Earlier, bond prices were quite stable because the market was not as active and there were few players," Mr Tada said. "But today, we are seeing wider market participation and the information should be provided to all of them."

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