Demand for Thai corp bonds down as spreads tighten

* Corp bond issues aimed at retail, unattractive to funds

* Investors turning back to govt bonds

* For a calendar of upcoming issues, click on [ID:nBKK358580]

BANGKOK, Nov 4 - Investors in Thailand are losing their appetite for corporate bonds because of the steadily narrowing spreads over government debt, but companies are still likely to issue a record amount this year.

Fund managers said new corporate issues were being aimed at retail investors, who were interested in absolute returns, rather than institutional investors mostly buying bonds for trading in the secondary market.

"The outlook for corporate debt is still the same -- top-tier debt and short-term corporate debt spreads will narrow in coming weeks," said Arsa Indaravijava, head of fixed income at Ayudhya Fund Asset Management.

"But lately, short-dated government bonds, such as treasury bills, are drawing more buying interest as yields there keep moving up," he added.

One-month treasury bills auctioned on Monday yielded 1.13 percent, up 8 basis points from a month before, while yields on three-month bills rose 6.3 basis points and six-month bill yields climbed 10 basis points.

"It's better to go after government bonds than corporate bonds, which are now offering tiny returns. For example, a good name like PTTEP is now offering spreads of 15 basis points ... That doesn't make sense," one fund manager said.

Spreads between Thai corporate and government bond yields have tightened over the past three months, with top-rated maturities narrowing to perhaps 30 basis points at most.

Daily trading volume in corporate bonds was only about 420 million baht ($12.6 million) on Tuesday, down from 479 million baht on average in October and 490 million in September, according to Thai Bond Market Association data.

NO INCENTIVE

Among firms planning bond issues this month are Charoen Pokphand Foods (CPF) <CPF.BK>, which could sell 8 billion baht of bonds, and Thanachart Capital <TCAP.BK>, which could offer up to 9 billion baht of five-year bonds.

Fund managers probably won't be rushing to buy.

"The coupons on recent new bonds don't give much incentive. CPF's bonds, for instance, are offering spreads of only 40-50 basis points for four- and five-year issues," another fund manager said.

"Compared with general issues in the same maturity and with the same credit rating, it should offer about 80-120 basis points ... That's why institutional investors don't want to invest that much," he added.

In the final quarter of this year, Thai companies are likely to issue about 57 billion baht of bonds, taking advantage of low interest rates, according to the Thai Bond Market Association.

About 350 billion baht of corporate bonds were sold in the first nine months. If the fresh issuance is added to that, the full-year total would be a record of about 400 billion baht, well above the 280 billion baht issued in 2008.

Thailand's 1.12 trillion baht corporate bond market has grown significantly in recent years, supported by low interest rates, debt refinancing and a global shift of funds into emerging markets during the financial crisis. ($1=33.42 Baht)