Thailand Eyes $5 Billion From Notes, Loans as Bond Yields Soar

q74qlpb[xoh9gv6)ssht]8m(_media_dl_1.png Public Debt Management Office

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(Bloomberg) — Thailand plans to raise about $5 billion through a mix of promissory notes and term loans to fund a raft of measures to ease living costs, shunning bonds after the Iran war sent sovereign yields to multi-month highs.

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The government will issue 35 billion baht ($1.1 billion) of four-year promissory notes each month from June to September, and secure an additional 35 billion baht in term loans as a liquidity cushion, Jindarat Viriyataveekul, director-general of the Public Debt Management Office, said in an interview Tuesday.

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Bidding is underway for the first tranche of notes with the funds expected to be ready for deployment by June 1, when a program to subsidize cost of living is set to begin, Jindarat said. The cost of four-year notes is “pretty cheap” and expected to be slightly higher than 1%, she said. 

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The decision to refrain from issuing additional bonds is likely to be welcomed by investors, especially after Thai sovereign yields surged alongside global markets following the outbreak of the Iran war. While the Bank of Thailand has signaled an extended pause in interest rates, rising inflation driven by the global oil shock has reduced the likelihood of lower borrowing costs.

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The yield on 10-year Thai government bonds fell one basis point to 2.326% early on Wednesday, near its highest level in more than 17 months reached last week. A surge of more than 60 basis points since the end of February has widened the spread between the 2- and 10-year yield rising to about 110 basis points last week, the highest since November 2022.

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“Given the current market volatility, we think it’s best to use bridge financing first and refinance through government bonds later once market sentiment improves,” Jindarat said. “The four-year maturity gives us enough flexibility to do so.”

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Prime Minister Anutin Charnvirakul’s administration is pressing ahead with a controversial 400-billion-baht emergency borrowing plan, part of which will also finance a gradual energy transition from fossil fuels to renewable energy. More than 24 million Thais signed up for the co-payment program, underscoring the urgency many households feel for cash assistance as elevated fuel and living costs continue to squeeze incomes.

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Jindarat said the government plans to rely on term loans to finance energy-transition projects because such facilities allow authorities to gradually draw down funds in line with actual spending needs. The fundraising must be completed by the end of September next year.

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The government has no plans for now to raise the public debt ceiling from the current 70% of gross domestic product and will adopt a wait-and-see approach amid heightened global uncertainties, Jindarat said. The additional state spending is expected to boost economic growth by about 0.4 percentage point each this year and next year, she said.

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The Southeast Asian nation, which funds most of its fiscal deficit through issuance of baht-denominated bonds, has no immediate plans to tap overseas markets as domestic borrowing costs remain significantly cheaper, Jindarat said. With the benchmark interest rate at 1%, among the lowest in the world, borrowing in foreign currencies would be more complicated and create unnecessary costs, she said.