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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 santiki@set.or.th. Analysis. Supply side : financing needed by government

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Strategies for Prospering Thai Primary & Secondary Government Bond Market

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  1. Strategies for Prospering Thai Primary & Secondary Government Bond Market November 20, 2009 Dr. Santi Kiranand Group Head Market Development The Stock Exchange of Thailand santiki@set.or.th

  2. Analysis • Supply side: financing needed by government • Demand side: the readiness of the market and the need in government securities.

  3. Stimulus package: to help recover the economy 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

  4. Stimulus package: to help recover the economy 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.

  5. Water Resource/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

  6. SP2 • 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.

  7. SP2

  8. SP2

  9. Source of Funds • 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.

  10. 1. Financing for Fiscal deficit & Debt restructuring Source: www.pdmo.mof.go.th

  11. 2. Financing for Special Package 1 & 2 Source: www.pdmo.mof.go.th

  12. Issuance Value of Domestic Bond Bil.THB

  13. Thailand Outstanding Value

  14. Thailand Outstanding Value

  15. Thailand Trading Value Logarithmic scale

  16. Bond Turnover Ratio

  17. Yield Curve Movement From 01/01/2009 to 18/11/2009 SP2 Borrowing Plan SP2 Schedule Announcement SP1 Schedule Announcement SP1 Borrowing Plan Source: ThaiBMA

  18. Average AAA-Credit Spread Bps. Note: Data as of last date at each Quarter Source: ThaiBMA

  19. Term Spread SP2 Borrowing Plan SP2 Schedule Announcement SP1 Borrowing Plan SP1 Schedule Announcement Source: ThaiBMA

  20. What has happened? • 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.

  21. What will be in the future? • 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

  22. What will be in the future? • 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.

  23. What should be prepared? • 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.

  24. What should be prepared? • 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.

  25. Thank you www.set.or.th

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