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Strategies for Prospering Thai Primary &
Secondary Government Bond Market
November 20, 2009
Dr. Santi Kiranand
Group Head
Market Development
The Stock Exchange of Thailand
[email protected]
1
Analysis
 Supply side: financing needed by
government
 Demand side: the readiness of the
market and the need in government
securities.
2
Stimulus package: to help recover the economy
SP1
 Jan,13 2009 Cabinet agreed to a THB1.683 trillion stimulus package to
counter the economic slowdown.
 The government started spending a THB116.7 billion in March 2009, called
“Stimulus Package1 (SP1)”.
 IMF estimated the world economic will be contracted by 0.5% - 1.0% and
late recovered.
 A cabinet statement said that the stimulus package is to lure back tourists
and develop holiday and destinations.
The exchange rate: US$ 1 ~ THB 33.3 ~ NT$ 32.35
3
Stimulus package: to help recover the economy
SP2
 After SP1, cabinet approved the Stimulus Package 2 over the next three
fiscal years (2010-2012).
 The plan comprised a mix of cash handouts for low earners, tax cuts,
expanded free education and subsidies for transport and utilities.
 SP2 is amount THB1.56 trillion.
 The government expected this 2nd package to help boost GDP by 5% and
create 1.6 million jobs over three years.
4
SP2
Water Resource
/Agriculture
THB0.23 trn.
Public Service
THB1.14 trn.
Community
THB 0.1 trn.
THB1.56 trillion
Public Health
THB 9.29 bn.
Tourism
THB6.64 bn.
Education
THB60.15 bn.
Innovative
Economy
THB20.13 bn.
5
Source: www.tkk2555.com
SP2
 Of THB1.566 trillion, THB676 billion (43%) is allocated for logistic projects
such as mass transit, roads, aviation and railways. Irrigation investment
takes nearly 15% of the budget with nearly 35,000 projects. It claims to
create 350,000 jobs over three years.
 Energy investment gets THB213 billion. It is worth noting that the budget
allocated to the Southern area is relatively high at Bt100bn. Southern GDP
accounts for 9-10% of the country.
 Of the THB100 billion, THB65 billion will go to five provinces in the deep
South.
6
SP2
7
SP2
8
Source of Funds
 Source of funds of SP2 will come from the budget (39.2%),
domestic borrowing (17%), foreign borrowing (27.1%) and other
income (16.6%).
 The package will result in an increase in government borrowing
of THB 692 billion or about 7.6% of 2008 GDP. This might cause
public debt to exceed 50% of GDP.
9
1. Financing for Fiscal deficit & Debt restructuring
Bond
1.1 Benchmark Bond
1.2 Non-Benchmark Bond
1.3 Saving Bond
1.4 P/N
Issue
Term
(Year)
Expected Fiscal
Year 10
(Mil. THB)
Fiscal Year 09
(Mil. THB)
5
72,000
74,380
140,000
10
53,000
65,000
70,000
15
24,050
26,650
40,000
20
23,950
38,000
40,000
30
5,000
5,500
20,000
10,000
-
15,000
12
8,000
16,000
15,000
14
15,000
-
-
6,000
80,000
100,000
30,950
83,598
51,171
2
-
88,000
-
3
-
49,999
-
-
134,000
-
7
5–10
>5
2.1 S-T Government Bond
Fiscal Year 08
(Mil. THB)
2.2 T-Bill
3.1 Floating Rate Bond
4
-
22,000
30,000
3.2 Inflation Linked Bond
?
-
-
10,000
260,681
683,127
10
531,171
Total
Source: www.pdmo.mof.go.th
2. Financing for Special Package 1 & 2
Issue
Term
(Year)
Bond
2.2 Bank Loan
1-10
1 Oct 2009 – 31 Dec
2009
Fiscal Year 09
SP1
(Mil. THB)
SP2
(Mil. THB)
30,000
100,000
3.1 P/N
5+
-
100,000
3.2 Saving Bond
5+
-
70,000
30,000
270,000
Total
Source: www.pdmo.mof.go.th
11
Issuance Value of Domestic Bond
Bil.THB
1400
1200
Bil.THB
1000
800
600
400
200
0
2001
2002
2003
2004
2005
2006
Government Debt Securities
2007
2008
2009 as of
Q3
Corporate Bond
12
Thailand Outstanding Value
5,000,000.00
4,500,000.00
4,000,000.00
Mil.THB
3,500,000.00
3,000,000.00
2,500,000.00
2,000,000.00
1,500,000.00
1,000,000.00
500,000.00
0.00
2001
2002
2003
2004
2005
Government Debt Securities
2006
2007
Corporate Bond
2008
2009 (1-10)
Foreign Bond
13
Thailand Outstanding Value
Ex. Gov. Securities
1,200,000.00
1,000,000.00
Mil.THB
800,000.00
600,000.00
400,000.00
200,000.00
0.00
2001
2002
2003
2004
2005
Corporate Bond
2006
2007
2008
2009 (110)
Foreign Bond
14
Thailand Trading Value
100,000,000.00 Mil.THB
10,000,000.00
Logarithmic scale
1,000,000.00
100,000.00
10,000.00
1,000.00
100.00
10.00
1.00
2001
2002
2003
2004
Government Debt Securities
2005
2006
Corporate Bond
2007
2008
2009 (1-10)
Foreign Bond
15
Bond Turnover Ratio
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2001
2002
2003
2004
2005
Government Debt Securities
2006
2007
2008
2009 (1-10)
Corporate Bond
16
Yield Curve Movement
From 01/01/2009 to 18/11/2009
SP1 Schedule
Announcement
Source: ThaiBMA
SP1 Borrowing
Plan
SP2 Schedule
Announcement
SP2 Borrowing
Plan
17
Average AAA-Credit Spread
Bps.
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Q3 2009
Q2 2009
<= 3 Yrs
Source: ThaiBMA
Q1 2009
3-5 Yrs
Q4 2008
> 5Yrs
Note: Data as of last date at each Quarter
18
Term Spread
T e rm S p re a d 1 0 - 1 y e a r
3 .5
3
2 .5
2
SP2 Borrowing
Plan
1 .5
1
0 .5
Source: ThaiBMA
18/10/2009
18/9/2009
18/8/2009
18/7/2009
18/6/2009
18/5/2009
18/4/2009
18/3/2009
18/2/2009
18/1/2009
18/12/2008
SP1 Schedule
Announcement
18/11/2008
0
SP2 Schedule
Announcement
SP1 Borrowing
Plan
19
What has happened?
 Change in the yield curve shape
(from hump in shorter than 1-year to
normal shape)
 Steepened yield curve has been
observed since the first
announcement of the SP1. After that,
the curve was upward parallel shifted.
20
What will be in the future?
 It is expected to observe the increase
in policy rate by Q2/2010.
 The liquidity of secondary market
might not speed up rapidly like it was
in 2007 and 2008.
 More supply
---> positive effect
 Increasing yield ---> negative effect
21
What will be in the future?
 Benchmark, yield curve will be better
estimated. Private sector will benefit
from the clearer benchmarks.
 There will be more risk-management
instrument in the market. TFEX is
going to launch interest rate futures
by 2010.
22
What should be prepared?
 The supporting functions in bond
market must be improved, i.e. the
CRA, credit enhancement mechanism.
 Tactfully add more players in the
bond market. Government securities
might be more used as vehicle in
liquidity management for private
sector.
23
What should be prepared?
 If less interest rate volatility is
observed, it is expected to see more
issuance of long term government
securities.
 The market will be deeper. ILB, FRB
will be issued more.
 Retail investor may be able to access
bond market easier.
24
Thank you
www.set.or.th
25