Bond market tipped to recover in second half as Covid threat recedes

Outstanding debt in the Thai bond market in the first half of 2020 stood at Bt13.69 trillion, a 1.25 per cent rise fuelled largely by the issuance of government bonds. However, issuance of corporate bonds in the first half plunged by 43 per cent year on year due to the Covid-19 impact, Tada Phutthitada president of the Thai Bond Market Association, said on Thursday (July 9). Bond transactions in the secondary market increased 5 per cent year on year. 
However, signs of a bond market recovery have emerged as the number of Covid cases remains relatively low in Thailand,  he added.
Recent debenture issuances were welcomed by investors and sold out, even those corporate bonds with a credit rating below investment grade, including high-yield bonds, he said.
Corporate bonds with a credit rating of BBB- to BBB+ sold out in June, after issuances in April and May sold only 41.4 per cent and 93 per cent of their targets respectively.
Issuances of high-yield bonds also secured 100 per cent investor subscriptions in June, up from 34.6 per cent in April and 87.6 per cent in May, he said.
About 10 companies have restructured and rescheduled debenture debt payments worth a total Bt7.2 billion in the first half of this year. These corporate bonds are rated at BB+ or not-rated. Their redemption periods have been extended to between six months and two years. Tada was optimistic that insurers will not default on their debt obligations this year.
“In most cases issuers plan to meet bond redemption [deadlines], rather than placing hope on bond rollovers. Issuers and bankers have reassured me that the problem is manageable and defaults are unlikely this year,” said Tada.
He projects that companies will raise Bt800 billion from the bond market this year, down from the previous projection of Bt850 billion.
In the first half of 2020, issuers raised Bt323 billion via corporate bonds, down 43 per cent year on year, or 22 per cent on average for five-year bonds.
Energy firms are expected to raise Bt160 billion to finance their mergers, acquisitions and expansion abroad in the second half of this year, he said.
Foreign investors sold government and central bank bonds worth about Bt108.5 billion in the first half. They held government and central bonds worth Bt811.1 billion, representing 9 per cent of total government outstanding bonds, down from 10.45 per cent at the end of last year.
However, they bought Bt23.3 billion in government bonds in June and Bt11.7 billion in early July after seeing progress in containing the spread of Covid-19. Foreign investors, however, will be cautious due to concerns over tourism and export contraction as the economy recovers, he said.
Bond yields were also volatile in the first half of the year. Yields for two-year and 10-year bonds dropped 69 basis points and 18 basis points respectively from early this year to 0.45 per cent and 1.28 per cent at the end of second quarter. It was a new record low for two-year bonds.
Tada expects the Bank of Thailand’s Money Policy Committee to maintain the historically low policy rate at 0.5 per cent until the end of this year in order to accommodate economy recovery, adding that the central bank might implement extra measures to support the economy.