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Strategies for Prospering Thai Primary &

Secondary Government Bond Market

Dr. Santi KiranandGroup Head

Market DevelopmentThe Stock Exchange of Thailand

santiki@set.or.th

November 20, 2009

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Analysis

Supply side: financing needed by government

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

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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

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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. 2The government expected this nd 5packagetohelpboostGDPby %a

1 .6nd create million jobs over three years.

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SP2

Water Resource/AgricultureTHB0.23 trn.

Public ServiceTHB1.14 trn.

Tourism THB6.64 bn.

InnovativeEconomy

THB20.13 bn.

EducationTHB60.15 bn.

Public HealthTHB 9.29 bn.

CommunityTHB 0.1 trn.

THB1.56 trillion

Source: www.tkk2555.com

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SP2 Of THB 1566. trillion , THB b676 illio 43n( %)

is allocated for logistic projects such as mass tra nsit, roads, aviation and railways. Irrigation inve

stment takes nearly 1 5 % of the budget with n early 3 5 ,0 0 0 projects. It claims to create

350000, jobs over three years. Ener gy i nvest ment get s THB 213 billio n. It is wo

rth noting that the budget allocated to the Sout hern area is relatively high at Bt1 0 0 bn. Sout - hern GDP accounts for 9 1 0 % of the country.

Of the THB 100 billio n, THB 65 billio n will g o to five provinces in the deep South.

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SP2

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SP2

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Source of Funds

Source of funds of SP2 will come from 392the budget ( . %), domestic borrowi

17ng ( %), foreign borrowing (27.1% ) ( 1 6 .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.

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BondIssue Term (Year)

Fiscal Year 08 (Mil. THB)

Fiscal Year 09 (Mil. THB)

Expected Fiscal Year 10

(Mil. THB)

1.1 Benchmark Bond 5 72,000 74,380 140,000

10 53,000 65,000 70,000

15 24,050 26,650 40,000

20 23,950 38,000 40,000

30 5,000 5,500 20,000

1.2 Non-Benchmark Bond 7 10,000 - 15,000

12 8,000 16,000 15,000

14 15,000 - -

1.3 Saving Bond 5–10 6,000 80,000 100,000

1.4 P/N > 5 30,950 83,598 51,171

2.1 S-T Government Bond 2 - 88,000 -

3 - 49,999 -

2.2 T-Bill - 134,000 -

3.1 Floating Rate Bond 4 - 22,000 30,000

3.2 Inflation Linked Bond ? - - 10,000

Total 260,681 683,127 531,171

1. Financing for Fiscal deficit & Debt restructuring

Source: www.pdmo.mof.go.th

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BondIssue Term (Year)

Fiscal Year 09 SP1

(Mil. THB)

1 Oct 2009 – 31 Dec 2009 SP2

(Mil. THB)

2.2 Bank Loan 1-10 30,000 100,000

3.1 P/N 5+ - 100,000

3.2 Saving Bond 5+ - 70,000

Total 30,000 270,000

2. Financing for Special Package 1 & 2

Source: www.pdmo.mof.go.th

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Issuance Value of Domestic Bond

0

200

400

600

800

1000

1200

1400

2001 2002 2003 2004 2005 2006 2007 2008 2009 as of

Q3

Bil.T

HB

Government Debt Securities Corporate Bond

Bil.THB

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Thailand Outstanding Value

0.00

500,000.00

1,000,000.00

1,500,000.00

2,000,000.00

2,500,000.00

3,000,000.00

3,500,000.00

4,000,000.00

4,500,000.00

5,000,000.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 (1-10)

Mil.TH

B

Government Debt Securities Corporate Bond Foreign Bond

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Thailand Outstanding Value

Ex. Gov. Securities

0.00

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

1,200,000.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 (1-10)

Mil.TH

B

Corporate Bond Foreign Bond

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Thailand Trading Value

1.00

10.00

100.00

1,000.00

10,000.00

100,000.00

1,000,000.00

10,000,000.00

100,000,000.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 (1-10)

Mil.THB

Government Debt Securities Corporate Bond Foreign Bond

Log

ari

thm

ic

scale

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Bond Turnover Ratio

00.51

1.52

2.53

3.54

4.55

2001 2002 2003 2004 2005 2006 2007 2008 2009 (1-10)

Government Debt Securities Corporate Bond

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Yield Curve MovementFrom 01/01/2009 to 18/11/2009From 01/01/2009 to 18/11/2009

Source: ThaiBMA

SP1 Borrowing Plan

SP1 Schedule Announcement

SP2 Schedule Announcement

SP2 Borrowing Plan

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Average AAA-Credit Spread

0102030405060708090100110120130140150160170180

Q3 2009 Q2 2009 Q1 2009 Q4 2008

<= 3 Yrs 3-5 Yrs > 5Yrs

Bps.

Note: Data as of last date at each QuarterSource: ThaiBMA

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Term Spread

Term Spread 10-1 year

0

0.5

1

1.5

2

2.5

3

3.5

18/

11/

2008

18/

12/

2008

18/

1/2009

18/

2/2009

18/

3/2009

18/

4/2009

18/

5/2009

18/

6/2009

18/

7/2009

18/

8/2009

18/

9/2009

18/

10/

2009

SP1 Borrowing Plan

SP1 Schedule Announcement

SP2 Schedule Announcement

SP2 Borrowing Plan

Source: ThaiBMA

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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.

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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

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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.

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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.

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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.

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