Friday, September 17, 2010

Thailand plans first 50-yr govt bond in 2010/11

BANGKOK: Thailand's Finance Ministry plans to issue the country's first 50-year government bond in the fiscal year starting Oct. 1, the head of its Public Debt Management Office (PDMO) said on Friday, Sept 17.

Chakrit Parapuntakul said his office was surveying market demand for the planned bond, the proceeds of which would be used to refinance shorter-term debt issued to finance fiscal deficits.

Longer-dated Thai bond yields climbed on Friday as investors reduced positions on speculation that the next fiscal year's supply of bonds would contain a larger chunk of such bonds.

The 50-year bond plan pushed swaps higher as investors geared up for a flood of paying on fixed-rate swaps as buyers hedge their cash bond portfolios.

"The 50-year bond news is just symptomatic of the fact that the government wants to extend the duration and as such there is more value on the belly of the curve than the very long end," said the head of bond trading at a European bank in Bangkok.

The spike in 10-year bond yields outpaced a rise in short-dated yields, as central bank dollar-buying aimed at holding down the baht kept investors wary of the risk that tough capital controls could be imposed, similar to those in 2006.

As a result, the curve extended a recent steepening bias with spreads between 10-year bonds and one-year debt widening to 110 basis points compared with a 20-month low of 90 bps earlier this month.


The PDMO's Chakrit told Reuters: "We are due this afternoon to conduct our annual market dialogue with potential institutional investors like insurance firms and investment funds. We will gauge their reaction to this plan."

"The meeting will help us finalise what volume of new bonds will be floated next year to finance budget deficits and restructure government debt," he said.

Finance Ministry officials said the bond issue, which they expected from the second quarter of calendar 2011, would be up to 5 billion baht ($160 million).

"The planned long bond is part of government policy to create more longer-term benchmarks to further develop the local bond market. The 5 billion baht figure is part of a total of around 500 billion baht in government bonds and debt to be issued in the 2010/11 fiscal year," one ministry source said.

The longest maturity in the Thai market at the moment is a 30-year bond currently yielding around 3.6 percent.

In early afternoon trade, 10-year bond yields were up four basis points at 3.13 percent. Ten-year swap rates rose six bps to 3.36 percent.

The fiscal year runs from October to September in Thailand. The Finance Ministry has budgeted for borrowing of 380 billion baht ($12.35 billion) in bonds until the fiscal year-end this month.

Traders said they saw quarterly issuance for the next fiscal year at about 110-130 billion baht compared with about 90-120 billion this year.

Bonds of longer maturities than 15 years accounted for about a quarter of this year's borrowing plan and traders expect this proportion to rise next year as the authorities take advantage of strong offshore demand and relatively low interest rates.

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