Thailand to shield US$40 billion debt plan from yield surge

BANGKOK, May 14 (Bloomberg): Thailand will shield its government borrowing plan from surging bond yields by tweaking the mix of short- and longer-term debt instruments it issues, according to the nation’s Public Debt Management Office.

South-East Asia’s second-largest economy will also adjust the ratio of debt carrying fixed and floating returns to minimize the impact of rising borrowing costs, Public Debt Management Office Director-General Patricia Mongkhonvanit said in e-mailed response to Bloomberg questions.

The nation is set to raise a total of 1.4 trillion baht (US$40.3 billion) in the fiscal year that began on Oct. 1.

The debt office agreed to switch 90 billion baht of short tenor sovereign bonds for those with longer maturities on Friday to ease ease redemption pressures and boost liquidity, days after saying it was suspending a planned dollar bond offering, citing rising borrowing costs and global market volatility.

Thailand is reworking its borrowing strategy as the global bonds market is roiled amid interest rate hikes by central banks led by the US Federal Reserve to combat surging inflation.

The yield on benchmark 10-year Thai bonds have spiked more than 140 basis points this year in tandem with the US Treasury even as the Bank of Thailand held its interest rates at a record low of 0.5% to support a nascent economic recovery.

"The bond yield increase may raise the borrowing cost but the debt office has managed the risk for the government debt portfolio,” Patricia said.

"The PDMO is confident that under such circumstances, we will be able to continue fund-raising by adjusting the proportion of each type of instrument to meet the needs of investors.”

The yield on 10-year bonds fell 3 basis points to 3.27% on Friday after jumping to a seven-year high of 3.31% earlier this week.

The rally in bonds may be temporary and volatility will remain elevated, according to Jennifer Kusuma, senior rates strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

"Sentiment will likely remain weak and steepening pressures would be sustained until we get more permanent guidance from the PDMO that supply in the rest of the year would be manageable,” Kusuma said.

The debt office is scheduled to announce details of the bond swap offer later on Friday.

With almost 82% of sovereign debt tied to fixed interest rates, the spike in bond yields won’t have "any drastic effect” on Thailand’s overall borrowing cost, Patricia said, adding the debt office will hold regular meetings with investors to gauge the market conditions to finalize its bond issuance plans. - Bloomberg

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