Debenture market 2022: Growing amid upward trend in interest rates while issuance of long-term debentures set to reach THB1.10-1.20 trillion (Business Brief No.3972)

KResearch assesses that monetary policy tightening attempts by the US Federal Reserve (Fed) and other leading central banks in the West and Asia (with the exception of the People’s Bank of China and Bank of Japan) will become more consistent during 2H22. Central banks that are expected to raise their policy rates during 3Q22 include the European Central Bank, Bank Indonesia and the Bank of Thailand for which the minutes of its latest MPC meeting on June 2022 point towards the likelihood of policy rate hikes during 3Q22.   

Financial costs in Thailand are projected to stay at an elevated level even as the yields of Thai government bonds, with a maturity of three years and higher, have increased by more than 100 basis points, suggesting that the current interest rates of Thai government bonds may have priced in the possible of policy rate hikes somewhat. In spite of this, KResearch is of the view that the yields of several tenors of Thai government bonds, particularly those with the maturity of less than two years, will likely increase further in line with policy rate hikes. It is expected the two-year Thai government bond yield will increase to at least 1.80 percent towards the end of 2022, from the 1.62 percent as of June 10, 2022.  

Despite the anticipated increases in Thai government bond yields, the narrowing credit spread between debentures and government bonds will be a key factor helping ease the private sector’s financial costs somewhat. Looking ahead, the recovering economy, a more stable credit spread between debentures and government bonds and the upward trend in Thai interest rates may induce the private sector to mobilize more funds via the issuance of debentures for the purposes of replacing those that are scheduled to reach maturity and expanding their businesses during the remainder of 2022. Given this, we at KResearch project that the value of long-term debentures to be issued during 2022 will reach within a range of THB1.10-1.20 trillion, which would exceed THB1 trillion for the second consecutive year. In 2021, the value of issued debentured totaled THB1.02 trillion. Meanwhile, close attention must be paid to that fact that approximately THB1.65 trillion in long-term debentures are set to mature during the remainder of 2022 through to 2024.