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Bond default risk minimal in Q2

The likelihood of bonds defaults in the second quarter is relatively low, with total default value projected at less than 1% of the total outstanding market value, says the Thai Bond Market Association (ThaiBMA).

Ariya Tiranaprakit, executive vice-president of ThaiBMA, said the trend of postponing bond payments started following the pandemic, driven by higher interest rates the past three years.

However, systemic risk is not a big problem as most of the postponements are in the high-yield bond group, with only a few cases of fraud or "window dressing", she said.

"Most of the companies that have problems asked for an extension of their payment terms and an interest reduction from their creditors. I believe these businesses can recover and eventually meet their payment obligations," said Ms Ariya.

Roughly 690 billion baht in bonds are due this year, including more than 250 billion in the second quarter. Most companies are expected to roll over their debts in April, particularly large companies with investment credit-rated bonds, she said.

"The advantage of issuing bonds is it allows you to lock in fixed interest expenses," said Ms Ariya.

"These businesses still have the opportunity to borrow money from financial institutions with floating interest rates during periods when the yield curve surges. Companies can compare financial costs to choose the cheaper method."

The association anticipates fundraising via corporate bonds this year will range from 900 billion to 1 trillion baht.

As of March, outstanding bonds in the market amounted to 17 trillion baht, up 3% from the end of 2023, mostly bonds issued by the government and the Bank of Thailand.

Corporate long-term bonds totalled 207 billion baht, down 1% year-on-year, 93% of which were investment-grade bonds. The top three sectors for issuance were property, finance and food and beverage.

ThaiBMA surveyed its members about expectations for rate cuts by the Bank of Thailand, with most predicting two reductions starting from June, making the policy rate 2% by year-end, down from 2.5% now.

Respondents expect the five-year and 10-year Thai bond yields will decrease by an average of 5-10 basis points (bps) from the first quarter to 2.13% and 2.44%, respectively, by the end of the year.

"The main factors affecting bond yields in the future are the direction of interest rates for leading economies and the economic situation in Thailand," said ThaiBMA president Somjin Sornpaisarn.

As of the first quarter, the five-year corporate bond yield curve in the AAA-A rating group decreased 15-21 bps from the same period of 2023. Bonds rated BBB+ and BBB rose to 4.68% and 5.46%, respectively, reflecting the flight to equity among more cautious investors, according to the association.

Foreign investors were net sellers of 34.3 billion baht in the Thai bond market for the period, still holding bonds worth 900 billion baht. Foreigners hold bonds with an average remaining maturity of 8.8 years, up from 8.6 years at the end of 2023. Last year, foreign net selling exceeded 80 billion baht.


This article was downloaded by calibre from https://www.bangkokpost.com/business/general/2771193/bond-default-risk-minimal-in-q2


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