Debenture market may bounce back second half of 2024: ThaiBMA
Cut in US Fed rate could trigger issuances worth up to 1 trillion baht in market that slumped 24% in first half, association says
Thailand’s debenture market could bounce back in the second half of the year if the US Federal Reserve lowers its interest rate once or twice before year-end, the Thai Bond Market Association (ThaiBMA) said on Tuesday.
The debenture market in the first half of 2024 shrank 24% year on year as private companies used other channels to raise funds, including bank loans with low interest than bond issuances to raise their funds, said Ariya Tiranaprakij, ThaiBMA executive vice president.
ThaiBMA said a reduction in the US Fed rate would lower the cost of debenture issuances, potentially prompting 10-billion-baht companies like PTT and True Corporation to issue bonds this year, said Ariya.
Also, some 540-billion-baht worth of debentures will reach maturity in the second half of 2024, prompting companies to issue more to raise funds, she added.
She estimated that new debentures issued by Thai companies this year would exceed 900 billion and may reach 1 trillion baht, depending on the Fed’s rate policy.
Traders and analysts see little chance of a rate cut at the Fed’s next meeting on June 12. However, Yahoo Finance reports that the London Stock Exchange Group (LSEG) has raised the chance of a cut in September to 59.1% based on Fed fund futures.
Ariya noted that investors tend to prefer debentures issued by companies with credit ratings of BBB+ and higher, as well as high-yield debentures. She added that bond issuance could also slow in the second half as companies show more caution about their financial products.
“Throughout this year, debentures will continue to be an alternative investment option amid a fluctuating capital market that offers better returns than interest on savings,” she said. Debentures from companies with an A credit rating offer up to 3.3% returns, which rises to 4.5% for BBB+ companies, and 6-8% for non-rated companies.
The ThaiBMA said the trend of Sustainability-Linked Bonds (SLB) will continue to grow among investors seeking responsible investment options. The Thai SLB market is currently worth around 650 billion baht, with more than half of bonds issued by government agencies.
