Credit quality is slowly beginning to stabilize across nonfinancial industries, though rating activity remains more negative than positive, said an article published today by Standard & Poor's, titled "Three U.S. Industries With The Greatest Potential To Improve Their Credit Quality In 2010 (Premium)." As the economy slowly rebounds in 2010, we expect to see areas of improvement, though upgrades likely will trail downgrades in most sectors.
"After reviewing the distribution of outlooks and CreditWatch listings, ratings trends, the performance of bond spreads, and recent operating results, we identified three sectors that we believe have the potential to see an upturn in creditworthiness next year," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "These three are health care, telecommunications, and chemicals."
Health care, which weathered the storm better than most sectors, has a relatively high positive bias (the proportion of issuers with a positive outlook or ratings on CreditWatch positive) and has seen relatively strong operating results.
The telecommunications sector also has fared well during the recession, despite having a number of highly leveraged companies. Improvement in economic and credit market conditions is supportive of continued stabilization and potential improvement in the credit quality of the telecommunications sector.
The chemicals sector has performed much worse than the other two sectors during the recession, though it has begun to show signs of stabilization. Given the cyclical nature of the sector, stronger economic conditions in 2010 could give credit quality a boost.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Tuesday, December 15, 2009
Thursday, December 3, 2009
Speculative-Grade Bond Market Conditions Have Improved, But Risks Remain
The speculative-grade corporate bond market has made a sharp turnaround from earlier in the year, said an article published today by Standard & Poor's, titled "U.S. Speculative-Grade Spreads Sector Index Review: Prices Might Be Ahead Of Fundamentals (Premium)."
"The spread on Standard & Poor's speculative-grade bond index has tightened 947 basis points this year to 700 basis points as of Nov. 12, and high-yield bond returns have eclipsed 50%," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.
Credit quality has begun to stabilize, albeit at a very weak level. Downgrades have slowed considerably, falling to 106 in the third quarter of 2009 from 241 in the first quarter and 210 in the second quarter.
"Credit metrics, such as debt to EBITDA and interest coverage, are likely at or near the cyclical bottom. However, rapid improvement would take a surge in top-line growth, which we believe is unlikely to happen this year," said Ms. Vazza. "We expect fundamentals to remain weak for speculative-grade-rated companies in 2010."
Sectors with high leverage and low interest coverage levels such as forest products and building materials, automotive, capital goods, and media and entertainment have the highest risk premiums.
Spreads have tightened across all sectors, with some sectors, such as automotive, experiencing significant tightening, more so a result of the removal of defaulted issues from the pool rather than an increase in bond prices in the sector.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
"The spread on Standard & Poor's speculative-grade bond index has tightened 947 basis points this year to 700 basis points as of Nov. 12, and high-yield bond returns have eclipsed 50%," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.
Credit quality has begun to stabilize, albeit at a very weak level. Downgrades have slowed considerably, falling to 106 in the third quarter of 2009 from 241 in the first quarter and 210 in the second quarter.
"Credit metrics, such as debt to EBITDA and interest coverage, are likely at or near the cyclical bottom. However, rapid improvement would take a surge in top-line growth, which we believe is unlikely to happen this year," said Ms. Vazza. "We expect fundamentals to remain weak for speculative-grade-rated companies in 2010."
Sectors with high leverage and low interest coverage levels such as forest products and building materials, automotive, capital goods, and media and entertainment have the highest risk premiums.
Spreads have tightened across all sectors, with some sectors, such as automotive, experiencing significant tightening, more so a result of the removal of defaulted issues from the pool rather than an increase in bond prices in the sector.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Saturday, November 21, 2009
Capital Market Masterplan
The Economic Cabinet has approved the Capital Market Masterplan as proposed by the Capital Market Development Committee which is chaired by the Minister of Finance.
The capital market is important to a country’s economic and social system. It plays the crucial roles of capital raising for both public and private sectors, promoting balance and stability in the financial system, decreasing dependency on the banking sector, driving the economy forward and creating jobs, as well as being an alternative method for savings. A strong capital market will lessen the impact of economic fluctuations which can be compounded by the fast-flowing nature of capital.
However, there are still many issues besetting the Thai capital market: few institutional investors, small retail investor base, limited financial products, high transaction costs, and lack of efficient regulatory enforcement are some examples. Moreover, Thailand’s capital markets in recent times have grown at a very slow pace. The size of the stock market compared to GDP is only 51% (as of June 2009) which is smaller than other countries in the region such as Hong Kong (845%), Singapore (202%), Malaysia (104%) and South Korea (66%). Should this trend continue, Thailand’s capital market will stagnate and become increasingly marginalized. Various studies have shown that inadequate development of the capital markets will impact its ability to raise, channel and monitor resources efficiently. In the end, this will lead to loss of growth opportunities, standard of living and prosperity.
In recognizing the importance of the capital market, Prime Minister Abhisit Vejjajiva has appointed the Capital Market Development Committee (The Committee) on January 27, 2009. This appointment is a continuation from the last but one government which has appointed the first Committee on March 25, 2008. The Committee is tasked with formulating an overall masterplan for the development of Thai capital market as well as monitoring the implementation of such plan. The Committee comprises of the Minister of Finance as the chairperson and experts from public and private sectors.
In formulating the Capital Market Development Masterplan (The Masterplan), the Committee has solicited inputs and opinions from all stakeholders and has formed the vision and the 5-year development objectives (2009-2013) as follow:
“The Thai capital market is the primary mechanism for aggregating, channeling, and monitoring economic resources. The goal of the capital market is to perform these tasks efficiently to increase overall competitiveness of Thailand”
The Committee has formulated 6 primary missions and objectives to realize this vision:
1. Capital market must be easily accessible by investors seeking investment opportunities and corporations seeking funds
2. Increase quality and variety of products and services
3. Reduce cost of funds to issuers and any intermediary and transaction costs to investors to enable Thai companies to become more competitive
4. Develop efficient infrastructure framework in legal, regulations, accounting, tax, information, technology and enforcement
5. Educate investors and ensure that adequate protection mechanism are in place
6. Promote competition in the Thai capital market and build links with the global market system
The Masterplan consists of 8 important reform measures that will affect the course of development and bring about major changes in the system.
Measure 1: Abolish the Monopoly and Improve Competitiveness of the Stock Exchange of Thailand (SET). Liberalization of capital flows and competitive pressure increase the chances of the SET being marginalized. To make the SET responsive to fast-changing business environments, its business structure must be transformed to increase efficiency and promote competitiveness. First step is to demutualize the SET, convert it into a public company (The Exchange Company), separate the exchange business from capital market development work, and establish a Capital Market Development Fund (CMDF) with the mission of long-term capital market development. The SET’s monopoly on exchange businesses will also end. Therefore, there may be other trading platforms permitted to trade listed stocks. The Exchange Company will be allowed to permit persons other than securities firms incorporated in Thailand to have direct access if it wishes to in order to increase liquidity and expand investment base to promote linkage with global capital market, and decrease limitations which currently obstruct the growth of Thai capital market.
Measure 2: Liberalization of securities business to promote market efficiency. This measure, while in line with recent trends of liberalization in the financial system, also aims to increase competitiveness of Thai capital market and enable it to withstand impact of fast capital flow. Liberalization of licenses will foster the market competition. Securities firms will have to adjust by forming alliances with strategic partners to increase its efficiency by offering new products and services. Deregulation of commissions will reduce transaction cost and increase market activities in the long run.
Measure 3: Reforming Legal Framework. Currently, there are draft laws relating to the capital market, being proposed to the House of Representatives which are: (1) Amendment Act to Royal Enactment on Special Purpose Juristic Persons for Securitisation B.E..... (2) The Draft of Commercial Collateral Act B.E and (3) Amendment Act to the Civil and Commercial Code B.E….. The government should keep pushing for passage of these laws. The Committee also had the resolution to propose further reforms, including (1) Laws to facilitate mergers and acquisitions activities, (2) Adopt civil penalty and (3) Amend the Civil Procedure Code to include class action lawsuits, which would help make enforcement of the Securities and Exchange Act more efficient.
Measure 4: Streamline Tax System. This measure aims to make the tax system more efficient to transactions, improve fairness, and provide tax incentives for transactions that the state would like to promote for the development of capital market. Taxation areas to streamline include those related to mergers and acquisitions, investments in debentures, elimination of double taxation on dividends, equalize tax incentives on direct investment and investment through intermediaries, transfer of investments in provident funds, public savings funds, life insurance premiums, Islamic bonds, securities borrowing and lending of the Bank of Thailand, and venture capital.
Measure 5: Develop Financial Products. Currently, the Thai capital market has few financial products to choose from, which cannot take care of diverse needs of investors thus making the market relatively unattractive. This measure aims to push for development of new products which would help increase the variety of instruments and consequently help develop the market. Example of new products are Infrastructure Fund to promote investments by the private sector, life annuities, interest rate derivatives, inflation-indexed government bonds, Islamic bond, venture capital, and divestiture of ministry of finance’s shares of publicly traded companies.
Measure 6: Establishment of a National Savings Fund. The Ministry of Finance had proposed a National Savings Fund Act, and the cabinet in a meeting on October 20, 2009 has agreed to the first draft. The National Savings Fund will cover workers outside the formal system comprising approximately 70% to total labor force in Thailand. The objective is to institutionalize savings for retirement, create equality of opportunity, and ensure that these informal sector workers are provided with some income after retirement. The National Savings Fund will become a major source of savings and investments in Thailand and will contribute to the development of Thai capital markets. It will help lessen the volatility of capital movements and also indirectly promote new financial products as well.
Measure 7: Developing a Culture of Savings and Investments. This measure aims to provide choices when investing in provident fund and Government Pension Fund, so that investors’ needs are met. It will also encourage investors to be proactive about acquiring new knowledge on financial products, so that investors can truly determine what types of products suit them.
Measure 8: Development of Domestic Bond Market. This measure aims to develop the government’s cash management methods and study alternatives of amending laws relating to treasury reserves, so that the government can issue treasury bills efficiently. The government should also be able to manage treasury reserves for yield by such means as depositing the reserves with other institutions instead of the Bank of Thailand. This will help decrease the cost of funds that the government faces. Moreover, the Bank of Thailand will take the lead in developing and promoting the private repo and securities borrowing and lending markets, providing the bond market with another tool to manage liquidity efficiently with low risks. Overall, this would lead to further growth in the market.
Aside from the 8 reform measures, the Masterplan consists of 34 further measures that should be implemented. These measures are important in changing the basic framework and developing new infrastructures in the long run, which would lead to the fulfillment of the Masterplan’s main objectives.
After the Masterplan has been approved, the drafting subcommittee will transform into the Implementation and Oversight Committee and charged with overseeing, monitoring, and assessing the implementation of the Masterplan. The new committee will use KPIs to assess progress and efficiency of the implementation.
The Committee believes that success in implementing the Masterplan, aside from directly benefiting the capital market, will have far-ranging benefits to society and economy as a whole. It will improve competitiveness, promote savings and retirement planning, improve linkage between Thai and global capital markets, and benefit all sectors of society. The results will be reflected and noticeable in the capital market structure itself. Thai capital market will grow larger with more liquidity which will strengthen balance and stability of the financial market. It will become a key driver in economic development, which will be observable in the prosperity of Thai people in the long run.
The capital market is important to a country’s economic and social system. It plays the crucial roles of capital raising for both public and private sectors, promoting balance and stability in the financial system, decreasing dependency on the banking sector, driving the economy forward and creating jobs, as well as being an alternative method for savings. A strong capital market will lessen the impact of economic fluctuations which can be compounded by the fast-flowing nature of capital.
However, there are still many issues besetting the Thai capital market: few institutional investors, small retail investor base, limited financial products, high transaction costs, and lack of efficient regulatory enforcement are some examples. Moreover, Thailand’s capital markets in recent times have grown at a very slow pace. The size of the stock market compared to GDP is only 51% (as of June 2009) which is smaller than other countries in the region such as Hong Kong (845%), Singapore (202%), Malaysia (104%) and South Korea (66%). Should this trend continue, Thailand’s capital market will stagnate and become increasingly marginalized. Various studies have shown that inadequate development of the capital markets will impact its ability to raise, channel and monitor resources efficiently. In the end, this will lead to loss of growth opportunities, standard of living and prosperity.
In recognizing the importance of the capital market, Prime Minister Abhisit Vejjajiva has appointed the Capital Market Development Committee (The Committee) on January 27, 2009. This appointment is a continuation from the last but one government which has appointed the first Committee on March 25, 2008. The Committee is tasked with formulating an overall masterplan for the development of Thai capital market as well as monitoring the implementation of such plan. The Committee comprises of the Minister of Finance as the chairperson and experts from public and private sectors.
In formulating the Capital Market Development Masterplan (The Masterplan), the Committee has solicited inputs and opinions from all stakeholders and has formed the vision and the 5-year development objectives (2009-2013) as follow:
“The Thai capital market is the primary mechanism for aggregating, channeling, and monitoring economic resources. The goal of the capital market is to perform these tasks efficiently to increase overall competitiveness of Thailand”
The Committee has formulated 6 primary missions and objectives to realize this vision:
1. Capital market must be easily accessible by investors seeking investment opportunities and corporations seeking funds
2. Increase quality and variety of products and services
3. Reduce cost of funds to issuers and any intermediary and transaction costs to investors to enable Thai companies to become more competitive
4. Develop efficient infrastructure framework in legal, regulations, accounting, tax, information, technology and enforcement
5. Educate investors and ensure that adequate protection mechanism are in place
6. Promote competition in the Thai capital market and build links with the global market system
The Masterplan consists of 8 important reform measures that will affect the course of development and bring about major changes in the system.
Measure 1: Abolish the Monopoly and Improve Competitiveness of the Stock Exchange of Thailand (SET). Liberalization of capital flows and competitive pressure increase the chances of the SET being marginalized. To make the SET responsive to fast-changing business environments, its business structure must be transformed to increase efficiency and promote competitiveness. First step is to demutualize the SET, convert it into a public company (The Exchange Company), separate the exchange business from capital market development work, and establish a Capital Market Development Fund (CMDF) with the mission of long-term capital market development. The SET’s monopoly on exchange businesses will also end. Therefore, there may be other trading platforms permitted to trade listed stocks. The Exchange Company will be allowed to permit persons other than securities firms incorporated in Thailand to have direct access if it wishes to in order to increase liquidity and expand investment base to promote linkage with global capital market, and decrease limitations which currently obstruct the growth of Thai capital market.
Measure 2: Liberalization of securities business to promote market efficiency. This measure, while in line with recent trends of liberalization in the financial system, also aims to increase competitiveness of Thai capital market and enable it to withstand impact of fast capital flow. Liberalization of licenses will foster the market competition. Securities firms will have to adjust by forming alliances with strategic partners to increase its efficiency by offering new products and services. Deregulation of commissions will reduce transaction cost and increase market activities in the long run.
Measure 3: Reforming Legal Framework. Currently, there are draft laws relating to the capital market, being proposed to the House of Representatives which are: (1) Amendment Act to Royal Enactment on Special Purpose Juristic Persons for Securitisation B.E..... (2) The Draft of Commercial Collateral Act B.E and (3) Amendment Act to the Civil and Commercial Code B.E….. The government should keep pushing for passage of these laws. The Committee also had the resolution to propose further reforms, including (1) Laws to facilitate mergers and acquisitions activities, (2) Adopt civil penalty and (3) Amend the Civil Procedure Code to include class action lawsuits, which would help make enforcement of the Securities and Exchange Act more efficient.
Measure 4: Streamline Tax System. This measure aims to make the tax system more efficient to transactions, improve fairness, and provide tax incentives for transactions that the state would like to promote for the development of capital market. Taxation areas to streamline include those related to mergers and acquisitions, investments in debentures, elimination of double taxation on dividends, equalize tax incentives on direct investment and investment through intermediaries, transfer of investments in provident funds, public savings funds, life insurance premiums, Islamic bonds, securities borrowing and lending of the Bank of Thailand, and venture capital.
Measure 5: Develop Financial Products. Currently, the Thai capital market has few financial products to choose from, which cannot take care of diverse needs of investors thus making the market relatively unattractive. This measure aims to push for development of new products which would help increase the variety of instruments and consequently help develop the market. Example of new products are Infrastructure Fund to promote investments by the private sector, life annuities, interest rate derivatives, inflation-indexed government bonds, Islamic bond, venture capital, and divestiture of ministry of finance’s shares of publicly traded companies.
Measure 6: Establishment of a National Savings Fund. The Ministry of Finance had proposed a National Savings Fund Act, and the cabinet in a meeting on October 20, 2009 has agreed to the first draft. The National Savings Fund will cover workers outside the formal system comprising approximately 70% to total labor force in Thailand. The objective is to institutionalize savings for retirement, create equality of opportunity, and ensure that these informal sector workers are provided with some income after retirement. The National Savings Fund will become a major source of savings and investments in Thailand and will contribute to the development of Thai capital markets. It will help lessen the volatility of capital movements and also indirectly promote new financial products as well.
Measure 7: Developing a Culture of Savings and Investments. This measure aims to provide choices when investing in provident fund and Government Pension Fund, so that investors’ needs are met. It will also encourage investors to be proactive about acquiring new knowledge on financial products, so that investors can truly determine what types of products suit them.
Measure 8: Development of Domestic Bond Market. This measure aims to develop the government’s cash management methods and study alternatives of amending laws relating to treasury reserves, so that the government can issue treasury bills efficiently. The government should also be able to manage treasury reserves for yield by such means as depositing the reserves with other institutions instead of the Bank of Thailand. This will help decrease the cost of funds that the government faces. Moreover, the Bank of Thailand will take the lead in developing and promoting the private repo and securities borrowing and lending markets, providing the bond market with another tool to manage liquidity efficiently with low risks. Overall, this would lead to further growth in the market.
Aside from the 8 reform measures, the Masterplan consists of 34 further measures that should be implemented. These measures are important in changing the basic framework and developing new infrastructures in the long run, which would lead to the fulfillment of the Masterplan’s main objectives.
After the Masterplan has been approved, the drafting subcommittee will transform into the Implementation and Oversight Committee and charged with overseeing, monitoring, and assessing the implementation of the Masterplan. The new committee will use KPIs to assess progress and efficiency of the implementation.
The Committee believes that success in implementing the Masterplan, aside from directly benefiting the capital market, will have far-ranging benefits to society and economy as a whole. It will improve competitiveness, promote savings and retirement planning, improve linkage between Thai and global capital markets, and benefit all sectors of society. The results will be reflected and noticeable in the capital market structure itself. Thai capital market will grow larger with more liquidity which will strengthen balance and stability of the financial market. It will become a key driver in economic development, which will be observable in the prosperity of Thai people in the long run.
Sunday, November 8, 2009
Corporate spreads narrow
Investors in Thailand are losing their appetite for corporate bonds because of steadily narrowing spreads over government debt, but companies are still likely to issue a record amount this year.
Fund managers said new corporate issues were being aimed at retail investors, who were interested in absolute returns, rather than institutional investors looking to trade in the secondary market.
"The outlook for corporate debt is still the same - top-tier debt and shortterm corporate debt spreads will narrow in coming weeks," said Arsa Indaravijava,head of fixed income at Ayudhya Fund Asset Management."But lately, shortdated government bonds, such as treasury bills, are drawing more buying interest as yields there keep moving up."
One-month treasury bills auctioned on Monday yielded 1.13%, up eight basis points from a month before, while the three-month bill yield rose 6.3 points and six-month yields climbed 10 points.
"It's better to go after government than corporate bonds, which are now offering tiny returns. For example, a good name like PTTEP is now offering spreads of 15 basis points.... That doesn't make sense," one fund manager said.
Spreads between Thai corporate and government bond yields have tightened over the past three months, with toprated maturities narrowing to perhaps 30 basis points at most.
Daily trading volume in corporate bonds was 420 million baht on Tuesday,down from 479 million on average in October and 490 million in September,according to Thai Bond Market Association data.
Among companies planning bond issues this month are Charoen Pokphand Foods (CPF), which could sell 8 billion baht, and Thanachart Capital (TCAP),which could offer up to 9 billion baht IN five-year bonds.
Fund managers probably won't be rushing to buy.
"The coupons on recent new bonds don't give much incentive. CPF's bonds,for instance, are offering spreads of only 40-50 basis points for 4- and 5-year issues," a fund manager said.
Fund managers said new corporate issues were being aimed at retail investors, who were interested in absolute returns, rather than institutional investors looking to trade in the secondary market.
"The outlook for corporate debt is still the same - top-tier debt and shortterm corporate debt spreads will narrow in coming weeks," said Arsa Indaravijava,head of fixed income at Ayudhya Fund Asset Management."But lately, shortdated government bonds, such as treasury bills, are drawing more buying interest as yields there keep moving up."
One-month treasury bills auctioned on Monday yielded 1.13%, up eight basis points from a month before, while the three-month bill yield rose 6.3 points and six-month yields climbed 10 points.
"It's better to go after government than corporate bonds, which are now offering tiny returns. For example, a good name like PTTEP is now offering spreads of 15 basis points.... That doesn't make sense," one fund manager said.
Spreads between Thai corporate and government bond yields have tightened over the past three months, with toprated maturities narrowing to perhaps 30 basis points at most.
Daily trading volume in corporate bonds was 420 million baht on Tuesday,down from 479 million on average in October and 490 million in September,according to Thai Bond Market Association data.
Among companies planning bond issues this month are Charoen Pokphand Foods (CPF), which could sell 8 billion baht, and Thanachart Capital (TCAP),which could offer up to 9 billion baht IN five-year bonds.
Fund managers probably won't be rushing to buy.
"The coupons on recent new bonds don't give much incentive. CPF's bonds,for instance, are offering spreads of only 40-50 basis points for 4- and 5-year issues," a fund manager said.
Saturday, October 31, 2009
US needs a rethink as the dollar sours
Treasuries should no longer be considered free of risk.The dollar should no longer be the key global currency.
The US should lose its golden credit rating. Bankers and investors around the world should dump dollars. Read any economics textbook and you come to that conclusion.
Massive government spending and money creation to rescue the nation from the Great Recession have deluged the US Treasury market with new securities - exacerbating the country's already massive debt load.
Chronic US trade deficits have led to the accumulation of vast stores of dollars in foreign bank accounts.
Classic economics theory says supply should overwhelm demand in both markets. Treasuries should no longer be considered free of risk. The dollar should no longer be the key global currency.
The US has balanced its budget only five times in the past 50 years. The four straight years of surpluses, starting with 1998, now look like a statistical error.
Total government debt at the end of 2008 was US$10.7 trillion (352 trillion baht), compared with $5.53 trillion 10 years earlier. A bit of nostalgia: In 1978,the debt was $789 billion, with a "b".
There's little relief in sight. The latest budget deficit forecast for the new fiscal year that began yesterday is $1.4 trillion,according to the Congressional Budget Office.
While the recession has curbed the US appetite for foreign goods, Americans still spend more overseas than they sell,as they have consistently since World War II ended in 1945. The deficit in July was $32 billion.
Using an index based on how much business the US does with other countries, the value of the dollar has plunged about 13% since March 4.
World Bank president Robert Zoellick,a former US trade representative, said last week that though the dollar remains the dominant global currency,"nothing's guaranteed".
The double whammy of soaring Treasury sales and the decline of the dollar should stop governments such as China and Saudi Arabia from investing large chunks of their trade-earned dollars in US securities.
Instead, they are buying more. Foreign investors bought 43% of the $1.41 trillion of Treasury notes and bonds issued so far this year versus 27% of the $527 billion sold in the same 2008 period.
China more than once has said it might move away from Treasuries. Still,its purchases have increased by 10%this year and it now owns $800 billion of Treasuries, the most of any foreign country.
During the credit crisis, investors still considered America the safest bet. They were so eager that at one point they bought short-term US paper that guaranteed them a small loss.
As the economy begins to recover,they are buying Treasuries on the bet that inflation will stay tame even though the Federal Reserve is creating money rapidly in its recovery efforts.
Pacific Investment Management Co's Total Return fund, the world's biggest bond fund, has increased its holding of government-related securities to 44%of its total investments, up from 27% in July. Bill Gross, the funds boss, says he views the move as protection against deflation, prices actually declining.
Notions about inflation will change if the US and other industrialised nations can't figure out when to ease off from their massive stimulus spending. No easy task.
To protect the safety of Treasuries and the dollar, the US government must soon get its budget under control. History suggests this is impossible.
Hard-pressed Americans now are saving more than they did a few years ago,curbing the demand for imported goods.How long will that last?
Textbook economics suggests that before long, Japan and other Asian nations will start converting their dollars into euro-denominated securities - or perhaps a new international currency backed by a basket of, say, euros and yen along with dollars. That would mean a significant decline for Treasuries and the dollar.The US no longer will be supreme.
The US should lose its golden credit rating. Bankers and investors around the world should dump dollars. Read any economics textbook and you come to that conclusion.
Massive government spending and money creation to rescue the nation from the Great Recession have deluged the US Treasury market with new securities - exacerbating the country's already massive debt load.
Chronic US trade deficits have led to the accumulation of vast stores of dollars in foreign bank accounts.
Classic economics theory says supply should overwhelm demand in both markets. Treasuries should no longer be considered free of risk. The dollar should no longer be the key global currency.
The US has balanced its budget only five times in the past 50 years. The four straight years of surpluses, starting with 1998, now look like a statistical error.
Total government debt at the end of 2008 was US$10.7 trillion (352 trillion baht), compared with $5.53 trillion 10 years earlier. A bit of nostalgia: In 1978,the debt was $789 billion, with a "b".
There's little relief in sight. The latest budget deficit forecast for the new fiscal year that began yesterday is $1.4 trillion,according to the Congressional Budget Office.
While the recession has curbed the US appetite for foreign goods, Americans still spend more overseas than they sell,as they have consistently since World War II ended in 1945. The deficit in July was $32 billion.
Using an index based on how much business the US does with other countries, the value of the dollar has plunged about 13% since March 4.
World Bank president Robert Zoellick,a former US trade representative, said last week that though the dollar remains the dominant global currency,"nothing's guaranteed".
The double whammy of soaring Treasury sales and the decline of the dollar should stop governments such as China and Saudi Arabia from investing large chunks of their trade-earned dollars in US securities.
Instead, they are buying more. Foreign investors bought 43% of the $1.41 trillion of Treasury notes and bonds issued so far this year versus 27% of the $527 billion sold in the same 2008 period.
China more than once has said it might move away from Treasuries. Still,its purchases have increased by 10%this year and it now owns $800 billion of Treasuries, the most of any foreign country.
During the credit crisis, investors still considered America the safest bet. They were so eager that at one point they bought short-term US paper that guaranteed them a small loss.
As the economy begins to recover,they are buying Treasuries on the bet that inflation will stay tame even though the Federal Reserve is creating money rapidly in its recovery efforts.
Pacific Investment Management Co's Total Return fund, the world's biggest bond fund, has increased its holding of government-related securities to 44%of its total investments, up from 27% in July. Bill Gross, the funds boss, says he views the move as protection against deflation, prices actually declining.
Notions about inflation will change if the US and other industrialised nations can't figure out when to ease off from their massive stimulus spending. No easy task.
To protect the safety of Treasuries and the dollar, the US government must soon get its budget under control. History suggests this is impossible.
Hard-pressed Americans now are saving more than they did a few years ago,curbing the demand for imported goods.How long will that last?
Textbook economics suggests that before long, Japan and other Asian nations will start converting their dollars into euro-denominated securities - or perhaps a new international currency backed by a basket of, say, euros and yen along with dollars. That would mean a significant decline for Treasuries and the dollar.The US no longer will be supreme.
New offers from banks and funds
- Siam Commercial Bank has rolled out 'SCB My Home My Cash', a personal loan backed by a borrower's home. It provides up to Bt5 million in credit with a maximum 15year period and interest starting at the minimum retail rate - currently 6.45 per cent.
- Krung Thai Bank will put more than 1,500 nonperforming assets worth Bt2.5 billion on sale at the 20th Housing & Condo Festival tomorrow and Sunday at the Queen Sirikit National Convention Centre. Those who purchase its NPAs at the fair will get a mortgage at zero interest for the first year and then the minimum lending rate minus 0.25 percentage point throughout the remaining term. The bank's MLR now stands at 5.85 per cent.
The bank will finance up to 110 per cent and requires a minimum deposit of Bt10,000.
- GH Bank offers mortgages with a zero down payment or zero interest rate for the first year for takers of its NPAs at the 20th Housing & Condo Festival. The bank will make 50 properties available at the fair at a maximum disฌcount of 20 per cent.
- United Overseas Bank (Thai) has unveiled the UOB Visa Debit Card with two features - one UOB Rewards Plus point for every Bt20 spent and a free monthly statement to moniฌtor spending.
- UOB Asset Management is launching an initial public offering of UOB Korean Bond 12/1 until October 8. The fund has a policy to mainly invest in South Korean government bonds and all investment is fully hedged against foreignexchange risk. The minimum subscription is Bt10,000.
- Asset Plus Fund Management is launching the initial public offering of ASPSmart 2 until October 8. The twoyear fund has a polฌicy to invest in big marketcap stocks, includฌing energy, banks, communication and stocks benefiting from the government's Thai Khemkhaeng scheme. The fund features auto redemption when net asset value increases every Bt0.50 per unit.
- Manulife Asset Management offers special promotions to those who invest in its MS Core LTF or MSFLEX RMF until the end of the year. Those who buy into the company's LTF and RMF at Bt50,000 will get Bt400 cashback and an organiser, while a Bt100,000 investment means Bt800 cashback and an organiser, Bt150,000 means Bt1,200 cashback plus an organiser, Bt200,000 means Bt1,600 cashback plus a G2000 bag, Bt250,000 gives entitlement to Bt2,000 cashback plus G2000 bag, and Bt300,000 to Bt2,400 cashback plus G2000 bag. Investment of Bt350,000 leads to Bt2,800 cashback, Bt400,000 to Bt3,200 cashback, Bt450,000 to Bt3,600 cashback, and Bt500,000 to Bt4,000 cashback - all of these also entitling the investor to a G2000 bag.
-TMB Asset Management is launching TMB South Korean Treasury Fund Series 33 and TMB South Korean Treasury Fund Series 35 until Monday. Both funds have a policy to invest in South Korean government bonds and treasury bills, and all investment is fully hedged against foreignexchange risk. TMB South Korean Treasury Fund Series 33, a nine-month fund, is expected to yield a return of 2 per cent per annum and TMB South Korean Treasury Fund Series 35, a six-month fund, is expected to provide return of 1.85 per cent.
-Tisco Asset Management offers special promotions to those who buy its retirement mutual funds and longterm equity funds until December 30. Those who invest in Tisco LongTerm Equity Fund, Tisco Dividend LongTerm Equity Fund, Tisco China India Retirement Fund, Tisco Equity Growth RMF and Tisco Flexible Portfolio RMF in amounts between Bt50,000 and Bt99,999 will receive a Bt200 Central Department Store voucher, while investors of Bt100,000 to Bt199,999 will get a Philips radio clock, between Bt200,000 and Bt499,999 will receive a Jabra Bluetooth, between Bt500,000 and Bt999,999 will get a Nokia 2323 handset, and from Bt1 million will receive 25satangweight of gold necklace.
Those who invest between Bt50,000 and Bt99,999 in Tisco Secured Fixed Income RMF and Tisco Fixed Income RMF will receive a foldable travel bag, between Bt100,000 and Bt199,999 will get a Bt200 Central Department Store voucher, between Bt200,000 and Bt499,999 will get a Philips radio clock and from Bt500,000 will get a Philips DVD player.
- ING Funds (Thailand) offers a special promotion to those who invest in ING Thai Greater China until October 15. Those in greater Bangkok will get a Bt500 Central gift voucher for every Bt200,000 in investment, while those in provincial areas will receive a Bt500 Tesco Lotus voucher. To be eligible for the vouchers, they must hold the investment for at least three months.
- Krung Thai Bank will put more than 1,500 nonperforming assets worth Bt2.5 billion on sale at the 20th Housing & Condo Festival tomorrow and Sunday at the Queen Sirikit National Convention Centre. Those who purchase its NPAs at the fair will get a mortgage at zero interest for the first year and then the minimum lending rate minus 0.25 percentage point throughout the remaining term. The bank's MLR now stands at 5.85 per cent.
The bank will finance up to 110 per cent and requires a minimum deposit of Bt10,000.
- GH Bank offers mortgages with a zero down payment or zero interest rate for the first year for takers of its NPAs at the 20th Housing & Condo Festival. The bank will make 50 properties available at the fair at a maximum disฌcount of 20 per cent.
- United Overseas Bank (Thai) has unveiled the UOB Visa Debit Card with two features - one UOB Rewards Plus point for every Bt20 spent and a free monthly statement to moniฌtor spending.
- UOB Asset Management is launching an initial public offering of UOB Korean Bond 12/1 until October 8. The fund has a policy to mainly invest in South Korean government bonds and all investment is fully hedged against foreignexchange risk. The minimum subscription is Bt10,000.
- Asset Plus Fund Management is launching the initial public offering of ASPSmart 2 until October 8. The twoyear fund has a polฌicy to invest in big marketcap stocks, includฌing energy, banks, communication and stocks benefiting from the government's Thai Khemkhaeng scheme. The fund features auto redemption when net asset value increases every Bt0.50 per unit.
- Manulife Asset Management offers special promotions to those who invest in its MS Core LTF or MSFLEX RMF until the end of the year. Those who buy into the company's LTF and RMF at Bt50,000 will get Bt400 cashback and an organiser, while a Bt100,000 investment means Bt800 cashback and an organiser, Bt150,000 means Bt1,200 cashback plus an organiser, Bt200,000 means Bt1,600 cashback plus a G2000 bag, Bt250,000 gives entitlement to Bt2,000 cashback plus G2000 bag, and Bt300,000 to Bt2,400 cashback plus G2000 bag. Investment of Bt350,000 leads to Bt2,800 cashback, Bt400,000 to Bt3,200 cashback, Bt450,000 to Bt3,600 cashback, and Bt500,000 to Bt4,000 cashback - all of these also entitling the investor to a G2000 bag.
-TMB Asset Management is launching TMB South Korean Treasury Fund Series 33 and TMB South Korean Treasury Fund Series 35 until Monday. Both funds have a policy to invest in South Korean government bonds and treasury bills, and all investment is fully hedged against foreignexchange risk. TMB South Korean Treasury Fund Series 33, a nine-month fund, is expected to yield a return of 2 per cent per annum and TMB South Korean Treasury Fund Series 35, a six-month fund, is expected to provide return of 1.85 per cent.
-Tisco Asset Management offers special promotions to those who buy its retirement mutual funds and longterm equity funds until December 30. Those who invest in Tisco LongTerm Equity Fund, Tisco Dividend LongTerm Equity Fund, Tisco China India Retirement Fund, Tisco Equity Growth RMF and Tisco Flexible Portfolio RMF in amounts between Bt50,000 and Bt99,999 will receive a Bt200 Central Department Store voucher, while investors of Bt100,000 to Bt199,999 will get a Philips radio clock, between Bt200,000 and Bt499,999 will receive a Jabra Bluetooth, between Bt500,000 and Bt999,999 will get a Nokia 2323 handset, and from Bt1 million will receive 25satangweight of gold necklace.
Those who invest between Bt50,000 and Bt99,999 in Tisco Secured Fixed Income RMF and Tisco Fixed Income RMF will receive a foldable travel bag, between Bt100,000 and Bt199,999 will get a Bt200 Central Department Store voucher, between Bt200,000 and Bt499,999 will get a Philips radio clock and from Bt500,000 will get a Philips DVD player.
- ING Funds (Thailand) offers a special promotion to those who invest in ING Thai Greater China until October 15. Those in greater Bangkok will get a Bt500 Central gift voucher for every Bt200,000 in investment, while those in provincial areas will receive a Bt500 Tesco Lotus voucher. To be eligible for the vouchers, they must hold the investment for at least three months.
Thursday, October 8, 2009
GPF posts 7.8% return for first nine months
The Government Pension Fund reported a 7.8% investment return for the first nine months of the year, thanks to recovering local and global financial markets.
The country's largest pension fund posted a return of 24.742 billion baht to Sept 30, a sharp turnaround from losses of 16.997 billion, a 5.17% decline, in the first nine months of 2008.
Net assets excluding reserves totalled 348.15 billion baht at the end of September. Annualised returns for the 12 months ending in September were 7.3%.
Sathit Limpongpan, the GPF chairman and permanent secretary of the Finance Ministry, said three factors drove the turnaround in the fund's performance.
First was the improving global economy, driven by expansionary fiscal policies. Second was the recovery of Thai exports, domestic consumption and private investment. Third was the turnaround in investor confidence and a rebound in the local capital market, including a nearly 60% gain for the Stock Exchange of Thailand index over the first three quarters of the year.
The GPF, which manages retirement assets for 1.17 million civil servants,maintained 69.3% of assets in Thai debt instruments as of Sept 30, with another 5.6% held in foreign debt.
Deputy secretary-general Variya Wongpreecha said Thai equities accounted for 8.9% of the fund's portfolio, with foreign equities of 8.6%, Thai property assets 4.1% and alternative investments 3.5%.
"Our investment strategy for the rest of the year will remain conservative,"she said."We will continue to closely monitor trends in the money and capital markets, as well as risk factors related to economic recovery."
"This includes the effect of fiscal stimulus programmes across the globe, oilprice and inflation trends and the possible tightening of monetary policy."
She said that in anticipation of higher interest rates next year, the GPF's bond portfolio now had an average duration of 2.4 years, compared with three years at the end of 2008. Average duration over the first nine months was 2.6 years.
Investors will typically shift their fixedincome investments to shorter terms if interest rates are likely to rise to mitigate their future risk.
Mrs Variya said domestic political stability remained another major risk factor that could undermine investor confidence going forward.
The GPF meanwhile is continuing its search for a new secretary-general.
Mr Sathit said the GPF's board will ask a recruitment agency retained to assist in the search to submit two new names for consideration within 30 days.
A previous list was rejected as the suggested candidates failed to meet GPF criteria. The process was complicated further when the chairman of the recruitment panel retired this past month,forcing the GPF to appoint a new panel.
Mr Sathit said the GPF would place ethics high on its list of criteria for the new secretary-general.
"The new secretary-general must not use the position to invest in the Stock Exchange of Thailand for personal gain.This is a new requirement that we have added for this appointment," he said.
The GPF board fired Visit Tantisunthorn as secretary-general in June for violating fund regulations. A Public Sector Anti-Corruption Commission investigation accused Mr Visit of personally investing in stocks also related to shares invested in by the GPF, a practice known in the industry as front-running.
The country's largest pension fund posted a return of 24.742 billion baht to Sept 30, a sharp turnaround from losses of 16.997 billion, a 5.17% decline, in the first nine months of 2008.
Net assets excluding reserves totalled 348.15 billion baht at the end of September. Annualised returns for the 12 months ending in September were 7.3%.
Sathit Limpongpan, the GPF chairman and permanent secretary of the Finance Ministry, said three factors drove the turnaround in the fund's performance.
First was the improving global economy, driven by expansionary fiscal policies. Second was the recovery of Thai exports, domestic consumption and private investment. Third was the turnaround in investor confidence and a rebound in the local capital market, including a nearly 60% gain for the Stock Exchange of Thailand index over the first three quarters of the year.
The GPF, which manages retirement assets for 1.17 million civil servants,maintained 69.3% of assets in Thai debt instruments as of Sept 30, with another 5.6% held in foreign debt.
Deputy secretary-general Variya Wongpreecha said Thai equities accounted for 8.9% of the fund's portfolio, with foreign equities of 8.6%, Thai property assets 4.1% and alternative investments 3.5%.
"Our investment strategy for the rest of the year will remain conservative,"she said."We will continue to closely monitor trends in the money and capital markets, as well as risk factors related to economic recovery."
"This includes the effect of fiscal stimulus programmes across the globe, oilprice and inflation trends and the possible tightening of monetary policy."
She said that in anticipation of higher interest rates next year, the GPF's bond portfolio now had an average duration of 2.4 years, compared with three years at the end of 2008. Average duration over the first nine months was 2.6 years.
Investors will typically shift their fixedincome investments to shorter terms if interest rates are likely to rise to mitigate their future risk.
Mrs Variya said domestic political stability remained another major risk factor that could undermine investor confidence going forward.
The GPF meanwhile is continuing its search for a new secretary-general.
Mr Sathit said the GPF's board will ask a recruitment agency retained to assist in the search to submit two new names for consideration within 30 days.
A previous list was rejected as the suggested candidates failed to meet GPF criteria. The process was complicated further when the chairman of the recruitment panel retired this past month,forcing the GPF to appoint a new panel.
Mr Sathit said the GPF would place ethics high on its list of criteria for the new secretary-general.
"The new secretary-general must not use the position to invest in the Stock Exchange of Thailand for personal gain.This is a new requirement that we have added for this appointment," he said.
The GPF board fired Visit Tantisunthorn as secretary-general in June for violating fund regulations. A Public Sector Anti-Corruption Commission investigation accused Mr Visit of personally investing in stocks also related to shares invested in by the GPF, a practice known in the industry as front-running.
Friday, September 18, 2009
INCREASED DISCLOSURE REGULATIONS?
After misreading risks of investing in sub-prime mortgage securities that triggered the current global financial crisis, Moody's Investors Service, Standard & Poor's and Fitch Ratings are about to face more disclosure requirements and greater accountability for debt analyses.
Bloomberg reported the US Securities and Exchange Commission would propose firms seeking to sell bonds disclose the grades they received while shopping among credit-rating companies, quoting people familiar with the matter.
Other changes scheduled for disuccion today at a Washington meeting may make it easier for investors to sue credit raters and require the companies to disclose revenue from their biggest clients, the people said.
Congress will decide whether the steps go far enough to reform an industry whose wrong assessments on subrime-mortgage securities fuelled the financial crisis by helping banks sell assets that went sour.
House Financial Services Committee chairman Barney Frank this week said he wanted to cut references to credit ratings from US rules, because the provisions fostered reliance on ratings and deter investors from doing research.
"What happens as a result of these rules is that investors have to buy securities that have particular ratings," said Frank Partnoy, a University of San Diego law professor and former Morgan Stanley banker who has written research papers about credit-rating companies.
"It creates this incredible dysfunctionality where the ratings agencies, instead of surviving based on their ability to generate good ratings, are basically selling licenses" to the capital markets.
The SEC will seek addiional comment on a proposal, issued in June 2008, to drop requirements that the US$3.5 trillion (Bt118 trillion) mutual-fund and money-market industry rely on assessments from ratings companies for purchase decisions, according to the people. The SEC plans include removing some references to ratings from its rules, the people said.
"The commission will consider measures to strengthen oversight of credit-rating agencies and improve the quality of ratings through greater transparency and accoutntability," SEC spokesman John Nester said on Tuesday.
Bloomberg reported the US Securities and Exchange Commission would propose firms seeking to sell bonds disclose the grades they received while shopping among credit-rating companies, quoting people familiar with the matter.
Other changes scheduled for disuccion today at a Washington meeting may make it easier for investors to sue credit raters and require the companies to disclose revenue from their biggest clients, the people said.
Congress will decide whether the steps go far enough to reform an industry whose wrong assessments on subrime-mortgage securities fuelled the financial crisis by helping banks sell assets that went sour.
House Financial Services Committee chairman Barney Frank this week said he wanted to cut references to credit ratings from US rules, because the provisions fostered reliance on ratings and deter investors from doing research.
"What happens as a result of these rules is that investors have to buy securities that have particular ratings," said Frank Partnoy, a University of San Diego law professor and former Morgan Stanley banker who has written research papers about credit-rating companies.
"It creates this incredible dysfunctionality where the ratings agencies, instead of surviving based on their ability to generate good ratings, are basically selling licenses" to the capital markets.
The SEC will seek addiional comment on a proposal, issued in June 2008, to drop requirements that the US$3.5 trillion (Bt118 trillion) mutual-fund and money-market industry rely on assessments from ratings companies for purchase decisions, according to the people. The SEC plans include removing some references to ratings from its rules, the people said.
"The commission will consider measures to strengthen oversight of credit-rating agencies and improve the quality of ratings through greater transparency and accoutntability," SEC spokesman John Nester said on Tuesday.
10-year yield 4%
The Finance Ministry has approved the sale of 7.74 billion baht worth of 10-year government bonds for a weighted average accepted yield of 3.977%. Accepted bid yields ranged from 3.9% to 4.05%,with the coupon rate 3.875% and bid coverage of 0.85 times.
Also sold were 8 billion baht in floating-rate bonds due in September 2013 for an average yield of 1.461%.Accepted bid yields ranged from 1.44% to 1.47%, with the coupon rate 6M Bibor (Bangkok Interbank Offered Rate)-0.15% and the bid coverage ratio 2.69 times.
Also sold were 8 billion baht in floating-rate bonds due in September 2013 for an average yield of 1.461%.Accepted bid yields ranged from 1.44% to 1.47%, with the coupon rate 6M Bibor (Bangkok Interbank Offered Rate)-0.15% and the bid coverage ratio 2.69 times.
Friday, September 11, 2009
BOT MULLS ANOTHER BOND ISSUE
The Bank of Thailand (BOT) might issue another batch of savings bonds this year after the overwhelming response to the recent issue, with total subscription at Bt130.7 billion. The move is a part of its plan to restructure its liquidฌity management by increasing longterm instruments to absorb excess liquidity. This could reduce shortterm tools like bilateral repurchase market.
BOT assistant governor Suchada Kirakul said yesterday that the central bank will issue a new tranche of savฌings bonds if the government does not issue its second lot of savings bonds within this year.
Moreover, it has to consider if demand and supply in the market was appropriate.
The Finance Ministry has planned to issue between Bt30 bilฌlion and Bt50 billion savings bonds in October after its first batch of Bt80 billion savings bonds sold out like hot cakes.
"If we issue a lot of the twoyear and fouryear bonds, we could reduce the shortterm instruments. The government is not issuing the bonds currently but we have to closely coordinate with them," said the assistant governor.
Liquidity surplus in the finanฌcial system now stands at Bt2.9 trillion, Bt1.7 trillion of which is available in the banking system. Of the total Bt2.9 trillion, a mere Bt500 billion is absorbed by bonds for periods of over a year.
The BOT said about 60,000 investors bought the BOT savings bonds totalling Bt130.69 billion, 60 per cent of which were sevenyear maturity bonds.
Suchada said after issuing the savings bonds, the central bank has reduced absorbing liquidฌity through other channels such as bilateral repurchase and deposit facility.
In addition to bonds, the central bank injects or absorbs the liquidity with many tools, including the bilateral repurchase operation, outright purchase and foreign exchange swap.
"We want to use different tools and don't want to rely largely on any particular instrument," she said.
Currently, the outstanding BOT bonds, including saving bonds, amount to Bt1.5 trillion.
Suchada said the central bank has reduced its liquidity absorpฌtion activities as the government has yet to spend after it had issued savings bonds worth Bt80 billion in early August.
Moreover, the excessive liquidity slightly dropped due to corpoฌrate tax payment.
The BOT makes liquidฌity projection to ensure it is on track. But the liquidity that the central bank provides daily to commercial banks would decline from around Bt800 billion to Bt900 billion to Bt660 billion.
Suchada said a number of banks have actively reacted to a series of savings bond issues by the government and the central bank by raising longterm fixed deposit rates or introducing special deposit packages to attract customers.
"The interestrate structure has not yet changed and the rates have long hit rock bottom," said the assistant governor.
Meanwhile, the BOT has obtained a contribution of 802 million special drawing rights (SDR), or US$1.25 billion (Bt42.6 trillion), from the International Monetary Fund (IMF) in August.
BOT assistant governor Suchada Kirakul said yesterday that the central bank will issue a new tranche of savฌings bonds if the government does not issue its second lot of savings bonds within this year.
Moreover, it has to consider if demand and supply in the market was appropriate.
The Finance Ministry has planned to issue between Bt30 bilฌlion and Bt50 billion savings bonds in October after its first batch of Bt80 billion savings bonds sold out like hot cakes.
"If we issue a lot of the twoyear and fouryear bonds, we could reduce the shortterm instruments. The government is not issuing the bonds currently but we have to closely coordinate with them," said the assistant governor.
Liquidity surplus in the finanฌcial system now stands at Bt2.9 trillion, Bt1.7 trillion of which is available in the banking system. Of the total Bt2.9 trillion, a mere Bt500 billion is absorbed by bonds for periods of over a year.
The BOT said about 60,000 investors bought the BOT savings bonds totalling Bt130.69 billion, 60 per cent of which were sevenyear maturity bonds.
Suchada said after issuing the savings bonds, the central bank has reduced absorbing liquidฌity through other channels such as bilateral repurchase and deposit facility.
In addition to bonds, the central bank injects or absorbs the liquidity with many tools, including the bilateral repurchase operation, outright purchase and foreign exchange swap.
"We want to use different tools and don't want to rely largely on any particular instrument," she said.
Currently, the outstanding BOT bonds, including saving bonds, amount to Bt1.5 trillion.
Suchada said the central bank has reduced its liquidity absorpฌtion activities as the government has yet to spend after it had issued savings bonds worth Bt80 billion in early August.
Moreover, the excessive liquidity slightly dropped due to corpoฌrate tax payment.
The BOT makes liquidฌity projection to ensure it is on track. But the liquidity that the central bank provides daily to commercial banks would decline from around Bt800 billion to Bt900 billion to Bt660 billion.
Suchada said a number of banks have actively reacted to a series of savings bond issues by the government and the central bank by raising longterm fixed deposit rates or introducing special deposit packages to attract customers.
"The interestrate structure has not yet changed and the rates have long hit rock bottom," said the assistant governor.
Meanwhile, the BOT has obtained a contribution of 802 million special drawing rights (SDR), or US$1.25 billion (Bt42.6 trillion), from the International Monetary Fund (IMF) in August.
Tuesday, September 8, 2009
CHINA TO FLOAT FIRST YUAN BONDS IN HK
Beijing will sell government bonds denominated in the mainland's yuan for the first time in Hong Kong this month, its Finance Ministry said yesterday, in a move to expand the international use of its tightly controlled currency.
Some 6 billion yuan (Bt30 billion) worth of bonds will be sold on September 28, the ministry said. Hong Kong is a Chinese territory but has its own currency and regulatory system and often is used by Chinese companies to deal with foreign investors.
DOLLAR CONCERNS
The yuan does not trade on global markets despite China's huge foreign trade, but Beijing is gradually expanding its use abroad. Chinese officials have expressed concern about the stability of the dominant US dollar and also have called for creation of a new global reserve currency.
Beijing signed a currency-swap deal with Argentina in March and has promised to lend yuan to the central banks of South Korea, Malaysia, Indonesia and Belarus in the event of a financial emergency. That could lead to the currency's use in private transaction.
A few mainland institutions, including state-owned China Construction Bank and Bank of China, have issued yuan-denominated bonds in Hong Kong.
Premier Wen Jiabao, the mainland's top economic official, has promised to strengthen trade and finance links with Hong Kong. Other officials have said it may become the centre for handling finance in yuan outside the mainland.
"This measure has a significant impact on promoting the depth and breadth of the Hong Kong bond market and strenghthening Hong Kong's position as an international financial centre," the territory's government said in a statement.
The Finance Ministry gave no details of who would handle the bond issue.
Two banks-London-based HSBC Holdings and Hong Kong-based Bank of East Asia-in May said they had become the first non-mainland companies approved to sell yuan bonds.
Some 6 billion yuan (Bt30 billion) worth of bonds will be sold on September 28, the ministry said. Hong Kong is a Chinese territory but has its own currency and regulatory system and often is used by Chinese companies to deal with foreign investors.
DOLLAR CONCERNS
The yuan does not trade on global markets despite China's huge foreign trade, but Beijing is gradually expanding its use abroad. Chinese officials have expressed concern about the stability of the dominant US dollar and also have called for creation of a new global reserve currency.
Beijing signed a currency-swap deal with Argentina in March and has promised to lend yuan to the central banks of South Korea, Malaysia, Indonesia and Belarus in the event of a financial emergency. That could lead to the currency's use in private transaction.
A few mainland institutions, including state-owned China Construction Bank and Bank of China, have issued yuan-denominated bonds in Hong Kong.
Premier Wen Jiabao, the mainland's top economic official, has promised to strengthen trade and finance links with Hong Kong. Other officials have said it may become the centre for handling finance in yuan outside the mainland.
"This measure has a significant impact on promoting the depth and breadth of the Hong Kong bond market and strenghthening Hong Kong's position as an international financial centre," the territory's government said in a statement.
The Finance Ministry gave no details of who would handle the bond issue.
Two banks-London-based HSBC Holdings and Hong Kong-based Bank of East Asia-in May said they had become the first non-mainland companies approved to sell yuan bonds.
BOT MULLS ANOTHER BOND ISSUE
The Bank of Thailand (BOT) might issue another batch of savings bonds this year after the overwhelming response to the recent issue, with total subscription at Bt130.7 billion. The move is a part of its plan to restructure its liquidฌity management by increasing longterm instruments to absorb excess liquidity. This could reduce shortterm tools like bilateral repurchase market.
BOT assistant governor Suchada Kirakul said yesterday that the central bank will issue a new tranche of savฌings bonds if the government does not issue its second lot of savings bonds within this year.
Moreover, it has to consider if demand and supply in the market was appropriate.
The Finance Ministry has planned to issue between Bt30 bilฌlion and Bt50 billion savings bonds in October after its first batch of Bt80 billion savings bonds sold out like hot cakes.
"If we issue a lot of the twoyear and fouryear bonds, we could reduce the shortterm instruments. The government is not issuing the bonds currently but we have to closely coordinate with them," said the assistant governor.
Liquidity surplus in the finanฌcial system now stands at Bt2.9 trillion, Bt1.7 trillion of which is available in the banking system. Of the total Bt2.9 trillion, a mere Bt500 billion is absorbed by bonds for periods of over a year.
The BOT said about 60,000 investors bought the BOT savings bonds totalling Bt130.69 billion, 60 per cent of which were sevenyear maturity bonds.
Suchada said after issuing the savings bonds, the central bank has reduced absorbing liquidฌity through other channels such as bilateral repurchase and deposit facility.
In addition to bonds, the central bank injects or absorbs the liquidity with many tools, including the bilateral repurchase operation, outright purchase and foreign exchange swap.
"We want to use different tools and don't want to rely largely on any particular instrument," she said.
Currently, the outstanding BOT bonds, including saving bonds, amount to Bt1.5 trillion.
Suchada said the central bank has reduced its liquidity absorpฌtion activities as the government has yet to spend after it had issued savings bonds worth Bt80 billion in early August.
Moreover, the excessive liquidity slightly dropped due to corpoฌrate tax payment.
The BOT makes liquidฌity projection to ensure it is on track. But the liquidity that the central bank provides daily to commercial banks would decline from around Bt800 billion to Bt900 billion to Bt660 billion.
Suchada said a number of banks have actively reacted to a series of savings bond issues by the government and the central bank by raising longterm fixed deposit rates or introducing special deposit packages to attract customers.
"The interestrate structure has not yet changed and the rates have long hit rock bottom," said the assistant governor.
Meanwhile, the BOT has obtained a contribution of 802 million special drawing rights (SDR), or US$1.25 billion (Bt42.6 trillion), from the International Monetary Fund (IMF) in August.
BOT assistant governor Suchada Kirakul said yesterday that the central bank will issue a new tranche of savฌings bonds if the government does not issue its second lot of savings bonds within this year.
Moreover, it has to consider if demand and supply in the market was appropriate.
The Finance Ministry has planned to issue between Bt30 bilฌlion and Bt50 billion savings bonds in October after its first batch of Bt80 billion savings bonds sold out like hot cakes.
"If we issue a lot of the twoyear and fouryear bonds, we could reduce the shortterm instruments. The government is not issuing the bonds currently but we have to closely coordinate with them," said the assistant governor.
Liquidity surplus in the finanฌcial system now stands at Bt2.9 trillion, Bt1.7 trillion of which is available in the banking system. Of the total Bt2.9 trillion, a mere Bt500 billion is absorbed by bonds for periods of over a year.
The BOT said about 60,000 investors bought the BOT savings bonds totalling Bt130.69 billion, 60 per cent of which were sevenyear maturity bonds.
Suchada said after issuing the savings bonds, the central bank has reduced absorbing liquidฌity through other channels such as bilateral repurchase and deposit facility.
In addition to bonds, the central bank injects or absorbs the liquidity with many tools, including the bilateral repurchase operation, outright purchase and foreign exchange swap.
"We want to use different tools and don't want to rely largely on any particular instrument," she said.
Currently, the outstanding BOT bonds, including saving bonds, amount to Bt1.5 trillion.
Suchada said the central bank has reduced its liquidity absorpฌtion activities as the government has yet to spend after it had issued savings bonds worth Bt80 billion in early August.
Moreover, the excessive liquidity slightly dropped due to corpoฌrate tax payment.
The BOT makes liquidฌity projection to ensure it is on track. But the liquidity that the central bank provides daily to commercial banks would decline from around Bt800 billion to Bt900 billion to Bt660 billion.
Suchada said a number of banks have actively reacted to a series of savings bond issues by the government and the central bank by raising longterm fixed deposit rates or introducing special deposit packages to attract customers.
"The interestrate structure has not yet changed and the rates have long hit rock bottom," said the assistant governor.
Meanwhile, the BOT has obtained a contribution of 802 million special drawing rights (SDR), or US$1.25 billion (Bt42.6 trillion), from the International Monetary Fund (IMF) in August.
Friday, August 28, 2009
SHORT MEMORIES ON WALL STREET
Wall Street many have discovered a way out from under the bad debt and risky mortgages that have clogged the financial markets. The would-be solution probably sounds familiar: it's a lot like what got banks in trouble in the first place.
In recent months, investment banks have been repackaging old mortgage securities and offering to sell them as products, a plan that is nearly identical to the complicated investment packages at the heart of the market's collapse.
"There is a little bit of deja vu in this," said Arizona State University economics professor Herbert Kaufman.
But Kaufman said the strategy could help solve one of the lingering problems of the financial meltdown: What to do about hundreds of billions of dollars in mortgages that are still choking the system and making bankers reluctant to make new loans.
These are holdovers from the housing bubble, when home prices soared, banks bought risky mortgages, bundled them with solid mortgages and sold them all as top-rated bonds. With investors eager to buy these bonds, lenders came up with increasingly risky mortgages, sometimes for people who could not afford them. It didn't matter because, in the end, the bonds would all get AAA ratings.
When the housing market tanked, figuring out how much those bonds were worth became nearly impossible. The banks and insurance companies that owned them knew there were still some good mortgages, so they didn't don't want to sell everything at fire-sale prices. But buyers knew there were many worthless loans, too, so they didn't want to pay full price for the remnants of a real-estate bubble.
In recent months, banks have been tiptoeing toward a possible solution, one in which the really good bonds get bundled with some not-quite-so-good bonds. Banks sweeten the deal for investors and, voila, the newly repackaged bonds receive AAA ratings, a stamp of approval that means they're the safest investment you can buy.
"You've now taken what was an A-rated security and made it eligible for AAA treatent," said Richard Reilly, an analyst with White & Case in New York.
As for the bottom-of-the-barrel bonds that are left over, those are getting sold off for pennies on the dollar to investors and hedge funds willing to take big risk for the chance of a big reward.
Kaufman said he's optimistic about the recent string of deals because, unlike during the realestate boom, investors in these new bonds know what they're buying.
"We're back to financial engineering, absolutely," he said. "But I think it's being done at least differently than it was before the meltdown."
The sweetener at the heart of the deal is a guarantee: investors who buy into the really risky pool agree to also take some of the risk away from those who buy into the safer pool. The safe investors get paid first. The risk-taking investors lose money first.
That's how the safe stack of bonds gets it AAA rating, which is crucial to the deal. That rating lets banks sell to pension funds, insurance companies and other investors that are required to hold only top-rated investments.
Financial gurus call it a "resecuritication of real-estate mortgage investment conduits." On Wall Street, it goes by the acronym Re-Remic (it rhymes with epidemic).
"It actually makes a lot of sense," said Brian Bowes, the head of mortgage trading at Hexagon Securities in New York. "It's taking a bond that doesn't necessarily have a natural buyer and creating two bonds that might have a natural buyer for each."
The risk is, if the housing market slips even more, even the AAA-rated investments may not prove safe. The deal also relies on the rating agencies, which misread the risk at the heart of the sub-prime mortgage crisis, to get it right.
AT A GLANCE
- In recent months, investment banks have been repackaging old mortgage securities and offering to sell them as new products, a plan that is nearly identical to the complicated investment packages at the heart of the market's collapse.
- "You've now taken what was an A-rated security and made it eligible for AAA treatment," said Richard Reilly, an analyst with White & Case in New York.
- The sweetener at the heart of the deal is a guarantee: investors who buy into the really risky pool agree to also take some of the risk away from those who buy into the safer pool. The safe investors get paid first. The risk-taking investors lose money first.
In recent months, investment banks have been repackaging old mortgage securities and offering to sell them as products, a plan that is nearly identical to the complicated investment packages at the heart of the market's collapse.
"There is a little bit of deja vu in this," said Arizona State University economics professor Herbert Kaufman.
But Kaufman said the strategy could help solve one of the lingering problems of the financial meltdown: What to do about hundreds of billions of dollars in mortgages that are still choking the system and making bankers reluctant to make new loans.
These are holdovers from the housing bubble, when home prices soared, banks bought risky mortgages, bundled them with solid mortgages and sold them all as top-rated bonds. With investors eager to buy these bonds, lenders came up with increasingly risky mortgages, sometimes for people who could not afford them. It didn't matter because, in the end, the bonds would all get AAA ratings.
When the housing market tanked, figuring out how much those bonds were worth became nearly impossible. The banks and insurance companies that owned them knew there were still some good mortgages, so they didn't don't want to sell everything at fire-sale prices. But buyers knew there were many worthless loans, too, so they didn't want to pay full price for the remnants of a real-estate bubble.
In recent months, banks have been tiptoeing toward a possible solution, one in which the really good bonds get bundled with some not-quite-so-good bonds. Banks sweeten the deal for investors and, voila, the newly repackaged bonds receive AAA ratings, a stamp of approval that means they're the safest investment you can buy.
"You've now taken what was an A-rated security and made it eligible for AAA treatent," said Richard Reilly, an analyst with White & Case in New York.
As for the bottom-of-the-barrel bonds that are left over, those are getting sold off for pennies on the dollar to investors and hedge funds willing to take big risk for the chance of a big reward.
Kaufman said he's optimistic about the recent string of deals because, unlike during the realestate boom, investors in these new bonds know what they're buying.
"We're back to financial engineering, absolutely," he said. "But I think it's being done at least differently than it was before the meltdown."
The sweetener at the heart of the deal is a guarantee: investors who buy into the really risky pool agree to also take some of the risk away from those who buy into the safer pool. The safe investors get paid first. The risk-taking investors lose money first.
That's how the safe stack of bonds gets it AAA rating, which is crucial to the deal. That rating lets banks sell to pension funds, insurance companies and other investors that are required to hold only top-rated investments.
Financial gurus call it a "resecuritication of real-estate mortgage investment conduits." On Wall Street, it goes by the acronym Re-Remic (it rhymes with epidemic).
"It actually makes a lot of sense," said Brian Bowes, the head of mortgage trading at Hexagon Securities in New York. "It's taking a bond that doesn't necessarily have a natural buyer and creating two bonds that might have a natural buyer for each."
The risk is, if the housing market slips even more, even the AAA-rated investments may not prove safe. The deal also relies on the rating agencies, which misread the risk at the heart of the sub-prime mortgage crisis, to get it right.
AT A GLANCE
- In recent months, investment banks have been repackaging old mortgage securities and offering to sell them as new products, a plan that is nearly identical to the complicated investment packages at the heart of the market's collapse.
- "You've now taken what was an A-rated security and made it eligible for AAA treatment," said Richard Reilly, an analyst with White & Case in New York.
- The sweetener at the heart of the deal is a guarantee: investors who buy into the really risky pool agree to also take some of the risk away from those who buy into the safer pool. The safe investors get paid first. The risk-taking investors lose money first.
PIMCO JOINS LIST OF TOP FINANCIERS WHO VOICE FEARS FOR THE US DOLLAR
Pacific Investment Management, the world's biggest manager of bond funds, said the dollar will weaken as the US pumps "massive" amounts of money into the economy.
The dollar will drop the most against emerging-market counterparts, Curtis A Mewbourne, a Pimco portfolio manager, wrote in a report on the company's website.
The greenback is losing its status as the world's reserve currency, he said.
"Investors should consider whether it makes sense to take advantage of any periods of US dollar strength to diversify their currency exposure," Mewbourne wrote in his August "Emerging Markets Watch" report.
"The massive amounts of US dollar liquidity produced in response to the crisis" have helped reduce demand for the currency, he wrote.
The Dollar Index, which tracks the greenback against a basket of currencies, touched 78.823 on Thursday, the lowest this week.
It has fallen 12 per cent from this year's high in March as US authorities pledged US$12.8 trillion (Bt435 trillion) to combat the recession. China, the world's largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.
"While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the US dollar as a store of value even in the absence of a single viable alternative," Mewbourne wrote.
The dollar as a percentage of global central bank's foreign the first three months of the year, from 64.1 per cent in the previous quarter, according to the International Monetary Fund.
Its share has remained around 65 per cent the last five years, after falling from 72.7 per cent in 2001.
The US government boosted spending and the Federal Reserve bought bonds to revive credit markets that seized up after financial companies posted $1.6 trillion in write-downs and losses, raising concern there is an oversupply of green-backs.
Asian currencies stand to benefit as the region's economy grtows and the dollar's allure fades, said Rajeev de Mello, Singapore-based head of Asian investments at Western Asset Management, which oversees $473.4 billion.
"We are positive on the Asian currencies against the dollar adn think they will continue to rally," de Mello said in an interview.
"I do think the diversification of reserves is something that's important and I think we'll see some from China into other currencies and this will benefit as well Asian currencies and other emerging currencies."
China's central bank renewed its call for a new global currency in June and said the International Monetary Fund should manage more of members' foreign-exchange reserves.
Russian President Dmitry Medvedev last month illustrated his call for a supranational currency by producing a sample coin after a summit of the Group of Eight nations.
Mewbourne joins investor Jim Rogers, who said last year that he was shifting all his assets out of dollars and buying Chinese yuan because the Fed erodded the value of the US currency.
The dollar is losing its status as the world's reserve currency, said Rogers, who is the author of books on investing including "Hot Commodities."
Bill Gross, who runs the $169-billion Pimco Total Return Fund, is also warning the US currency will fall.
Holders of dollars should diversify before central banks and sovereign wealth funds do the same because of concern government budget deficits will deepen, Gross said in June.
Gross' fund has returned 12 per cent in the past year, outperforming 96 per cent of its peers.
Billionaire Warren Buffett wrote in a New York Times commentary on Thursday that the dollar is under threat from the "monetary medicine" that has been pumped into the financial system.
"Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects," Buffett, 78, wrote.
The "greenback emissions" will swell the deficit to 13 per cent of gross domestic product this fiscal year, while net debt will increase to 56 per cent of GDP, he said.
The US budget deficit reached a record $1.27 trillion for the first 10 months of the fiscal year and broke a monthly high for July, the government said last week.
There is no viable immediate alternative to the US dollar for now as the euro region lacks a political union while Japan's economic weakeness makes it impossible to consider the yen for such a role, Mewbourne wrote.
The currencies of emerging states such as China cannot play a reserve role as long as they are subject to capital controls, which restrict international traders to using non-deliverable forwards, he wrote.
Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz.
Investor Jim Rogers said he was shifting all his assets out of dollars and buying Chinese yuan because the Fed eroded the value of the US currency.
The dollar will drop the most against emerging-market counterparts, Curtis A Mewbourne, a Pimco portfolio manager, wrote in a report on the company's website.
The greenback is losing its status as the world's reserve currency, he said.
"Investors should consider whether it makes sense to take advantage of any periods of US dollar strength to diversify their currency exposure," Mewbourne wrote in his August "Emerging Markets Watch" report.
"The massive amounts of US dollar liquidity produced in response to the crisis" have helped reduce demand for the currency, he wrote.
The Dollar Index, which tracks the greenback against a basket of currencies, touched 78.823 on Thursday, the lowest this week.
It has fallen 12 per cent from this year's high in March as US authorities pledged US$12.8 trillion (Bt435 trillion) to combat the recession. China, the world's largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.
"While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the US dollar as a store of value even in the absence of a single viable alternative," Mewbourne wrote.
The dollar as a percentage of global central bank's foreign the first three months of the year, from 64.1 per cent in the previous quarter, according to the International Monetary Fund.
Its share has remained around 65 per cent the last five years, after falling from 72.7 per cent in 2001.
The US government boosted spending and the Federal Reserve bought bonds to revive credit markets that seized up after financial companies posted $1.6 trillion in write-downs and losses, raising concern there is an oversupply of green-backs.
Asian currencies stand to benefit as the region's economy grtows and the dollar's allure fades, said Rajeev de Mello, Singapore-based head of Asian investments at Western Asset Management, which oversees $473.4 billion.
"We are positive on the Asian currencies against the dollar adn think they will continue to rally," de Mello said in an interview.
"I do think the diversification of reserves is something that's important and I think we'll see some from China into other currencies and this will benefit as well Asian currencies and other emerging currencies."
China's central bank renewed its call for a new global currency in June and said the International Monetary Fund should manage more of members' foreign-exchange reserves.
Russian President Dmitry Medvedev last month illustrated his call for a supranational currency by producing a sample coin after a summit of the Group of Eight nations.
Mewbourne joins investor Jim Rogers, who said last year that he was shifting all his assets out of dollars and buying Chinese yuan because the Fed erodded the value of the US currency.
The dollar is losing its status as the world's reserve currency, said Rogers, who is the author of books on investing including "Hot Commodities."
Bill Gross, who runs the $169-billion Pimco Total Return Fund, is also warning the US currency will fall.
Holders of dollars should diversify before central banks and sovereign wealth funds do the same because of concern government budget deficits will deepen, Gross said in June.
Gross' fund has returned 12 per cent in the past year, outperforming 96 per cent of its peers.
Billionaire Warren Buffett wrote in a New York Times commentary on Thursday that the dollar is under threat from the "monetary medicine" that has been pumped into the financial system.
"Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects," Buffett, 78, wrote.
The "greenback emissions" will swell the deficit to 13 per cent of gross domestic product this fiscal year, while net debt will increase to 56 per cent of GDP, he said.
The US budget deficit reached a record $1.27 trillion for the first 10 months of the fiscal year and broke a monthly high for July, the government said last week.
There is no viable immediate alternative to the US dollar for now as the euro region lacks a political union while Japan's economic weakeness makes it impossible to consider the yen for such a role, Mewbourne wrote.
The currencies of emerging states such as China cannot play a reserve role as long as they are subject to capital controls, which restrict international traders to using non-deliverable forwards, he wrote.
Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz.
Investor Jim Rogers said he was shifting all his assets out of dollars and buying Chinese yuan because the Fed eroded the value of the US currency.
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