Traders in Asia believe that a domestic treasury bond futures market to be launched in Thailand within nine to 12 months will result in a dramatic increase in the use of OTC interest-rate derivatives.
"This will allow bond traders to short the market," said Bryan Yap, Asian head of interest-rate swaps at Deutsche Bank in Singapore. "[It] will increase the depth of the underlying bond market and lead to a greater use of interest-rate derivatives for hedging exposure." He continued, "this has the potential to double the market within a year or so." Yap noted that in the Singapore market, where bond futures were introduced last year, trading volume in OTC interest-rate derivatives grew two or three fold.
"It's definitely good," agreed Pao Chatakononta, senior trader, interest rates at HSBC in Bangkok. "It will cause spreads to narrow." As spreads in the interest-rate derivatives market tighten with increased liquidity on the back of bond futures, more products will develop, such as treasury swaps benchmarked to an index. "Treasury-indexed swaps have been viewed by many end users as a more suitable benchmark than the current forward implied Thai baht rate," he added. Current monthly volumes on interest-rate derivatives average around USD80 million (notional). The products will likely be listed on the Stock Exchange of Thailand. Officials at the exchange did not return calls.
Soramon Chaithanagulmontkol, an official at the strategic development department at the Office of the Securities and Exchange Commission in Bangkok, said a bill to allow such products on the exchange is currently under consideration in parliament. She expects T-bond futures to be listed within 12 months.
