‘Yields dropping as govt bonds more popular now’
INVESTORS have flocked to subscribe to government bonds auctioned by the Finance Ministry after the Bank of Thailand tapered off its short-term-bond issuance this month, said Suwit Rojanavanich, director-general of the Public Debt Management Office.
“We’re really happy, as government bonds are in higher demand than before, resulting in bonds oversubscribed and lower interest costs,” he said.
He said yield of three-year government bonds recently dropped below 2 per cent, to about 1.7-1.8 per cent. Investors have oversubscribed both treasury bills and long-term government bonds auctioned by Finance Ministry, he said.
The ministry plans to issue a large amount of government bonds this year to finance the plan to run a fiscal deficit of Bt550 billion. Moreover, the government has to refinance a large part of the overhanging debt of the Financial Institutions Development Fund worth Bt900 billion.
Meanwhile, Ariya Tiranaprakit, executive vice president of the Thai Bond Market Association, said yield of BOT bonds had decreased recently. For example, 14-day central-bank bonds were in a range of 1.2 to 1.3 per cent, down from 1.4-1.5 per cent.
Not only foreign investors but also domestic institutional investors want to hold government and central-bank bonds, she said.
At end of last month, the BOT announced a Bt10-billion cut each for three- and six-month bonds put up for auction weekly this month, resulting in a total reduction of Bt80 billion for April. Therefore, the supply of three- and six-month bonds each dropped to Bt30 billion weekly from Bt40 billion each.
The BOT wants to curb baht speculation and discourage short-term capital inflows.
The BOT plans to review its action this week. It said it did not want foreign investors parking their short-term funds in short-term bonds because this caused the baht to strengthen and increase risks of exchange-rate volatility.
The baht has strengthened by about 4 per cent since the beginning of this year, and the regulator is concerned that this could hurt Thailand’s exports, which have recently shown signs of recovery.
Some analysts also believe that the BOT has tapered short-term-bond issuance because it wants to show the US government that Thailand does not try to manipulate the baht.
Apart from the BOT’s actions, bond yield has been affected by external factors – tension in the Korean Peninsula, the French election and uncertainty over US policies – contradicting previous assumptions of interest-rate rises this year, Ariya said.
