PDMO set to issue bonds

The Public Debt Management Office (PDMO) will issue new savings bonds worth 15 billion baht in early December amid rising interest rates, says a senior official.

Deputy director general Theeraj Athanavanich said the new issuance will be sold through branches of Bangkok Bank, Krungthai Bank, Kasikornbank and Siam Commercial Bank.

The savings bonds, with three-year and seven-year maturities, will be sold from Dec 13 until April 9 next year.

The coupon rate will be based on the current market yield of government bonds plus a spread offered by the PDMO in order to compensate for the obligatory tax.

The market yield of the current threeyear bond stands at 1.7%, while the 10-year yield is 2.2%.

A minimum purchase has been set at 1,000 and is not to exceed 2 million per buyer. Interest payments will be made semi-annually.

Mr Theeraj said the current bond market, especially for long-term bonds, is facing higher risks as foreign investors are shifting away from Asia to chase higher yields in the US.

Investment funds have also shown a preference for holding 2-3% of their portfolio’s in cash rather than invest in other assets.

Since Brexit in late July, the local bond market has seen yields climbing up 7-20 basis points depending on maturity.

Despite the greater risks, the bond market has not yet seen strong capital outflows as domestic demand is still healthy, while foreign investors’ share of the Thai bond market is only 14%.

“Despite the high demand for bonds and high market liquidity, public debt is also needed to balance the market when it issues new bonds,” he said, adding that the PDMO has to be cautious that its bonds issuance does not negatively affect yields.

Meanwhile, the government’s infrastructure projects for 2017 require new borrowing of 220 billion baht, around 150 billion of which will be used for ongoing development. The rest will go towards new projects.

As of the end of fiscal 2016 on Sept 30, Thailand’s public debt stood at 5.99 trillion baht or 42.7% of GDP, increasing 200 billion from the end of fiscal 2015. Current public debt, however, remained lower than earlier expected at 44% due to the government’s accelerated debt repayment.

For fiscal 2017, public debt should be 45.5% of GDP, said Mr Theeraj.