What are the Next Steps for the Bond Markets in Thailand?

Abstract

Recent financial market reform undertaken by East Asian policymakers has focused on facilitating corporate bond market development. McCauley and Park (2006) note that this vision encompasses three perspectives: a regional bond market denominated in regional currencies; a series of domestic markets; and finally a global market where national bond markets are developed with the ultimate objective of integration into a global market. Enhancing global integration requires greater foreign participation in the domestic markets (Burger and Warnock, 2006a) that includes the issuance activities of Multilateral Development Banks (Hoschka, 2005) and international corporations, as well as an expanded role for foreign investors (Bae, Yun and Bailey, 2006) in domestic markets, as well as more issues by domestic issuers in international markets. The objective of this study is to investigate some of the key empirical features of Thai international bond issues that may impede and enhance international bond issuance and to then propose ways of further enhancing this market. Specifically we focus upon bond return volatility and skewness as an impediment to involvement by international investors in domestic bond markets. Nonetheless, empirical analysis highlights the time-varying nature of variance and skewness of bond returns, which can only be overcome through government policy that focuses upon stabilizing the macroeconomic environment and not simply enhancing domestic and regional infrastructure.