An active local bond market also supports financial system stability. Holders of bonds – in particular commercial banks – can make use of these bonds in securing emergency funding from the monetary authorities. An active bond market where securities are marked-to-market on a daily basis will facilitate commercial banks’ access to emergency liquidity assistance through their sale or the use of such instruments as collateral. This mechanism provides a more efficient and transparent process than the use of other types of collaterals such as land, title deeds, or receivables, which have less transparent market value and less liquidity. BIS Review 24/2003  1  Development of the bond market in Thailand The local bond market in Thailand, like many other Asian markets, has been hindered by a number of institutional problems. The small size of the markets – and the resultant low liquidity – provided little incentive for active participation by both issuers and investors. On the supply side, a small market limits the feasible range of marketable instruments and their effective tradability. On the demand side, a small number of market players and a narrow investor base provided insufficient demand for private players to act as market-makers. A small number of market players and the dominance of a few players hindered competition and market liquidity. Thai authorities have made significant strides in developing the government bond market since 1998. A pre-announced and regular issuance calendar for the year is now available to help investors plan their investment horizon.
Work on the supply sides revolves around issues of tax, legal and regulatory as well as accounting and should receive endorsement from the highest levels of government following the adoption of the Chiang Mai Declaration on the Asian Bond Market Development. Demand side development: establishment of the Asian Bond Fund On the demand side, central banks in the region have been working closely under the Executives Meeting of East Asia-Pacific Central Banks – or EMEAP – to establish an Asian Bond Fund. Under this initiative, central banks will set aside a fraction of their reserves into a pool that will be invested in bonds issued by Asian governments and government enterprises, with an ultimate aim to provide a catalyst for private investors to consider investment in Asian issues EMEAP has worked out the details and modalities of the operation of such a Fund and will announce details to the public shortly. Approaches to regional cooperation: work on developing the supply side ASEAN+3 and APEC are both working on the development side of bond markets, including the removal of barriers impeding the issuance of bonds both in the regional and domestic contexts respectively. In addition, there has been cooperation in setting up the necessary infrastructure for such a regional bond market, including a regional credit rating agency, as well as credit enhancement facilities.