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22 Sep 2021

Financial Institutions

Higher demand for funds ...affects liquidity and bond yields (Current Issue No.3270)


Since August 2021, the upward trend of Thai bond yields has been one of the major issues that has drawn attention, even though the Bank of Thailand (BOT) still maintains its policy rate at a low level for 2021 and likely into 2022 amid the uncertainty surrounding economic recovery. There are several reasons behind the rise in Thai bond yields, including an increase in US Treasury yields, the Fed's signals of a move away from expansionary monetary policy, and the 2022 public debt management plan. Concerning the latter, Bloomberg reported that the Thai government plans to borrow THB 2.3 trillion in the 2022 fiscal year. This borrowing plan will consist of new borrowing and refinancing existing debt worth THB 1.1 trillion and THB 1.2 trillion, respectively. Another reason is the recent decision to raise the public debt ceiling to 70 percent of gross domestic product (GDP).

KResearch expects that the fund mobilization/borrowings in both public and private sectors will remain high going into 2022. The amount is expected to be higher than the increased liquidity in 2022 as current account and capital and financial account may remain in deficit. This could potentially lead to draining of  liquidity  next year, amid the halting recovery of the tourism sector. There is also a chance that capital flows may wobble further from the Federal Reserve (the Fed)'s tendency to taper QE measures over the remainder of 2021 and into next year.

In addition to preparing business plans, businesses should start to lay out their fund mobilization plans, borrowing channels and periods for issuing debentures in order to obtain the required amount of liquidity in a period where the cost of bond issuance is gradually rising in line with government bond yields. As evidenced, many companies seized the opportunity when bond yields were still relatively low to gradually issue their debentures to mobilize funds to pay off debts from debentures that are reaching their maturity in 2022, or to repay loans to financial institutions; allowing them to lock in the cost of issuing long-term debentures with lower interest than their maturing counterparts.​

Financial Institutions