Mar. 19--Corporate bond issuance in the first quarter totalled 73.5 billion baht, up 655 percent from the same period the year before, according to the Thai Bond Market Association.

Daily average outright trading also rose 39 percent over the past year. Total new issues for the year to mid-March were 2.4 trillion baht, up from 1.81 trillion in the same period in 2008.

Ariya Tiranaprakit, an executive vice-president at the association, said new corporate issues may reach 250 billion baht this year compared with 230 billion last year.

Government bond issues in the first quarter totalled 89 billion baht, up from 35.7 billion. Mrs Ariya said the energy sector accounted for 46 percent of the new debentures in the first quarter, followed by by banking at 31 percent, ICT at 10 percent, property at 7 percent and financial sector at 6 percent.

Another 70 to 80 billion baht in corporate debentures are in the pipeline. The government also plans to raise 346 billion baht to cover the cost of new stimulus programmes and the fiscal budget.

Fifty-two percent of the new corporate debt issued this year had terms of eight to 10 years, with 32 percent medium-term issues of four to seven years and 16 percent debt with terms under three years.

Spreads have widened sharply between two- and 10-year debt to as much as 250 basis points compared with basically zero as of last November, reflecting the premium demanded by investors for liquidity risk.

Funding costs have also widened to reflect credit risk. Top AAA-rated corporate debentures now are quoted at 50 basis points over risk-free treasuries, compared with the 200 to 300 points demanded for BBB-rated corporate debt.

"Take Quality Houses' three-year debenture, rated A- with a coupon of 5.3 percent. This represents a spread of 338 points over the three-year government bond," Mrs Ariya said.

ThaiBMA president Nattapol Chavalitcheevin said the yield curve would likely widen in the future, as the market expected inflation to pick up with higher government spending.

Rising unemployment could also force pension funds such as the Social Security Fund to divest some fixed-income investments to pay members.

"Expectations of rising interest rates may also lead provident funds to adjust their portfolios to prevent mark-to-market losses, affecting bond yields overall," Dr Nattapol said.

He added that the Government Pension Fund, which covers pension assets for the civil service, should consider changing its accounting methods from mark-to-market to a cost basis such as that used by the Social Security Fund and many insurance firms.

Doing so would help reduce portfolio return fluctuations and support the bond market overall, Dr Nattapol said.

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