Bond markets in Thailand have seen extraordinary growth over recent years and are expected to continue to post steady growth in 2023 due to an anticipation of rising interest rates. It would provide good opportunities of investing fixed income products for investors as there is a wide variety of large corporate bond supply in terms of different credit ratings and returns.
In 2022, global interest rates sharply increased from the lowest level, which had been frozen for several years. Experts believe that the United States' inflation has peaked; it is currently beginning to decline in line with the trend of oil and commodity goods prices.
However, the market's concerns about the risk of world economic recession, due to geopolitical conflict, high energy costs, increasing food prices and high financial burdens. It is expected that the US Federal Reserve (Fed) would tend to increase its policy rate to more than 5.00% by this year, from near zero a year ago.
In Thailand, the Bank of Thailand (BoT) recently raised its policy interest rate for the fourth consecutive time from 1.25% to 1.50%, the highest level since September 2019. Analysts expected that the central bank's policy rate could be raised to 1.75-2.0% by the end of this year.
The second half of this year could be beneficial for the bond market as a result of inverse correlation between interest rate and bond prices. When interest rates rise, the value of bonds declines. Furthermore, this could prove promising for bond investors.
Yields on Thai bonds have risen recently to account for the potential of future changes in interest rates.
With the anticipated rise in interest rates, the Thai Bond Market Association (ThaiBMA) expects the value of corporate bonds to be elevated this year.
Corporate bond issuance is projected to exceed 1 trillion baht in value this year after the market tallied 1.27 trillion baht in 2022, a record high for the third year in a row.
The ThaiBMA anticipates the Bank of Thailand's policy interest rate will increase to 2.00% this year while the US Federal Reserve's interest rate will peak at 5.50% by the end of the year, up from 4.25%.
Thai corporate bond issuers want to lock in financial costs and prepare to support economic growth and business expansion. Consequently, the bond market will remain robust and thriving in 2023.
Last year, there were 30 new issuers from 15 business sectors raising funds from the bond market, of which 21% is long-term bond issuance.
There is a growing demand among investors for investments that align with their values and social responsibility goals. As a result, bonds related to environmental, social and governance (ESG) were quite popular in 2022.
Among the key issuers, B.Grimm Power Plc issued two green bonds worth 3.3 billion baht in 2022. The ESG bonds enable the company to demonstrate their strong commitment to sustainability and socially responsible business practices.
In addition to ESG bonds, the trend of perpetual bonds is promising. A perpetual bond is a type of bond that has no maturity date or expiration. As a result, perpetual bonds offer relatively high returns to investors, compared to plain vanilla bonds.
B.Grimm Power will be one of the key issuers of perpetual bonds this year. The company plans to issue perpetual bonds with interest rates of between 5.75% and 5.95% per annum for the first five years. The final rate will be announced in March 2023 with the subscription period of the bonds expected to take place during March 28-30.
Perpetual bonds would help the company increase its investment capital for business expansion and improve its debt-to-equity ratio. From an investor perspective, perpetual bonds offer relatively higher return on investment, in line with its relatively higher risk level.