ASIA LOCAL BONDS- Thai bonds gain on weak GDP data

HONG KONG May 25 (Reuters) - Thai bond yields fell on Monday after weaker-than-expected first quarter gross domestic data lifted expectations the central bank may cut interest rates again, traders said.

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FLOWS AND VIEWS

Thailand's economy shrank a seasonally adjusted 1.9 percent in the first quarter to push the country into its first recession in a decade, driven by lower in household consumption and investment in fixed assets. [ID:nBKK432523]

Analysts said data suggested the central bank may have to ease monetary policy further.

"The disappointing data this morning raises the odds that the central bank will cut rate again by 25 basis points (bps), It's not just the headline number that's disappointing. It's also the breakdown," said Ramya Suryanarayanan, an economist at DBS Bank in Singapore.

David Cohen, director of Asian economic forecasting at Action Economics, said he had cut his 2009 GDP forecast to fall of 4.5 percent following the data release from a previous projection of a 3.5 percent drop.

Monetary authorities surprised the market last week by keeping its key rate unchanged at 1.25 percent because the current level is enough to support growth. The central bank has trimmed rates by 250 bps since December. [ID:nBKK119186]

The yield on the five-year bond TH5YT=RR slid by as much as 9 bps to 2.55 percent by late afternoon, traders said. The yield was at 2.64 percent before the GDP data was released.

"Bond yields were higher at the opening. But after the GDP data came out, yields were softer. Bonds are considered safe haven during bad times," a Bangkok-based trader said.

DEFICIT SPOOKS MARKET

Philippine bond yields rose by 5 bps across the board after the finance chief said the government may raise its 2009 budget deficit goal, prompting investors to dump debt, traders said.

Lower tax collection and higher spending is putting pressure on the government to revise this year's 199.2 billion peso ($4.2 billion) deficit estimate, which could result in more borrowings, traders said. [ID:nMNB000399]

By late afternoon, the yield on the five-year bond PH5YT=RR was up 6 bps to 5.94 percent, traders said. Volume of trade was at 7.2 billion pesos, versus 18.8 billion at the same point on Friday.

Expectations that the central bank would cut overnight rates by 25 bps on Thursday and by 25 bps more in June capped the rise in the yields, traders said. [ID:nMAN486085]

(Reporting by Jun Ebias; Editing by Kazunori Takada)