This has enabled the government to borrow at low cost and no longer be penalized for opportunistic behaviour of irregular issuance schedules. The Ministry of Finance now issues on a regular basis Government bonds with a maturity of up to a maximum of 20 years to establish a benchmark rate for medium to long-term debt securities. This has allowed a risk free benchmark to be constructed, and the Thai Bond Dealing Center publishes a yield curve on a daily basis. The BOT has appointed 10 financial institutions as primary dealers for bilateral repurchase (repo) transactions. This set of primary dealers will be counterparties for bilateral repo transactions with the BOT and act as intermediaries in forwarding liquidity adjustments resulting from bilateral repo transactions with the BOT to other market participants. To further enhance trading in the market and ensure that financial institutions have sufficient liquidity for their day-to-day operations, the Bank of Thailand is in the process of phasing out the repurchase market that BOT currently operates and introduce a full-fledged private bilateral repurchase market. Future challenges would center around improving the clearing and settlement system. These markets require a minimum turnover in order to function smoothly and cost effectively. A regional perspective: risks from currency and maturity mismatches In addition to developing local bond markets, Asian countries have also embarked on a regional initiative to promote the development of the Asian bond market. Asian countries have long enjoyed the highest saving rates in the world.
However – with the spirit of regional financial cooperation for development of Asia as a whole in mine – countries with more advanced financial systems may decide to offer these guarantees for a limited period of time. Proposals for development and integration: enhancing market infrastructure Currency arrangements Issuing bonds under a basket of Asian currencies may achieve a slightly lower cost of funding, given that the currency risk of a basket is lower than the sum of the risk of the underlying currencies. This lower risk should be reflected in a lower cost off capital for borrowers. With regards to liquidity, if bonds in the region were to be issued in a basket of currencies that could be traded in many Asian bond markets, liquidity of such a bond should be better than that of any individual bond. In this regard, deep and liquid bond markets should also reduce transaction costs, making the regional market more attractive than issuing locally. Such a basket of currencies may enhance the natural hedging ability of market participants in each country in the region. Given the importance of intra-regional trade, exporters cold better match the currency exposures of their assets with their liabilities. Cooperative actions needed to facilitate growth of regional bond markets The use of these mechanisms to promote development of bond products must not detract countries from taking serious steps to developing their bond markets.