The Public Debt Management Office (PDMO) is set to issue shorter-dated bonds after a wave of fixed-income fund redemptions because of fears of a economic downturn caused by Covid-19 denting bond demand.
Amid thin demand for government bonds, the PDMO has adjusted its bond issuance plan by shortening new bond issuance to be more comfortable for investors, said Theeraj Athanavanich, a bond market adviser at the PDMO. He said the agency has options to issue bonds with maturities in a band of 2-50 years, or treasury bills.
Liquidity in the secondary bond market is tight as investors unload fixed-income funds in exchange for cash, resulting in weaker demand for bonds and surging yields, Mr Theeraj said.
Investors who have excess liquidity but cannot find attractive returns typically plough money into low-risk assets, including debt instruments or government bonds. But the increased risk exposure from the outbreak has many investors holding cash even with zero return, weakening government bond demand, Mr Theeraj said.
The global investor exodus from financial markets has hit Thailand, prompting the Bank of Thailand on March 20 to urgently announce the creation of the Mutual Fund Liquidity Facility, a channel that lets banks offer liquidity to mutual fund operators struggling with unit holders' massive redemptions in fixed-income funds.
Banks repurchase all money market and daily fixed-income funds, while the central bank will repurchase underlying funds that meet its requirements from banks.
The central bank also bought government bonds worth 100 billion baht during March 13-20, and either tapered its bond issuance size or called off some bond offering series, hoping to improve liquidity in the bond market to let it function normally.
The Thai Bankers' Association, Government Savings Bank, insurance firms and the Government Pension Fund have jointly set up a 70- to 100-billion-baht fund for bridge financing for debt issuers who fail to roll over their debt instruments.