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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] Analysis. Supply side : financing needed by government

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Strategies for prospering thai primary secondary government bond market

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]


Analysis
Analysis Government Bond Market

  • Supply side: financing needed by government

  • Demand side: the readiness of the market and the need in government securities.


Stimulus package to help recover the economy sp1
Stimulus package: to help recover the economy Government Bond Market 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


Stimulus package to help recover the economy sp2
Stimulus package: to help recover the economy Government Bond Market 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.


Water Resource Government Bond Market /AgricultureTHB0.23 trn.

Public ServiceTHB1.14 trn.

CommunityTHB 0.1 trn.

THB1.56 trillion

Public HealthTHB 9.29 bn.

Tourism

THB6.64 bn.

EducationTHB60.15 bn.

InnovativeEconomyTHB20.13 bn.

SP2

Source: www.tkk2555.com


SP2 Government Bond Market

  • 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.


SP2 Government Bond Market


SP2 Government Bond Market


Source of funds
Source of Funds Government Bond Market

  • 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.


1. Financing for Fiscal deficit & Debt restructuring Government Bond Market

Source: www.pdmo.mof.go.th


2. Financing for Special Package 1 & 2 Government Bond Market

Source: www.pdmo.mof.go.th


Issuance value of domestic bond
Issuance Value of Domestic Bond Government Bond Market

Bil.THB


Thailand outstanding value
Thailand Outstanding Value Government Bond Market


Thailand outstanding value1
Thailand Outstanding Value Government Bond Market


Thailand trading value
Thailand Trading Value Government Bond Market

Logarithmic scale


Bond turnover ratio
Bond Turnover Ratio Government Bond Market


Yield curve movement
Yield Curve Movement Government Bond Market

From 01/01/2009 to 18/11/2009

SP2 Borrowing Plan

SP2 Schedule Announcement

SP1 Schedule Announcement

SP1 Borrowing Plan

Source: ThaiBMA


Average aaa credit spread
Average AAA-Credit Spread Government Bond Market

Bps.

Note: Data as of last date at each Quarter

Source: ThaiBMA


Term spread
Term Spread Government Bond Market

SP2 Borrowing Plan

SP2 Schedule Announcement

SP1 Borrowing Plan

SP1 Schedule Announcement

Source: ThaiBMA


What has happened
What has happened? Government Bond Market

  • 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.


What will be in the future
What will be in the future? Government Bond Market

  • 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


What will be in the future1
What will be in the future? Government Bond Market

  • 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.


What should be prepared
What should be prepared? Government Bond Market

  • 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.


What should be prepared1
What should be prepared? Government Bond Market

  • 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.


Thank you

Thank you Government Bond Market

www.set.or.th


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