New batch ready if demand exceeds issue

The maturity of the back-up batch might be longer than that of the July issue, he said.

The Finance Ministry will decide quickly whether the second batch needs to be issued as a back-up, he said yesterday at a contract-signing ceremony to appoint seven banks as selling agents for the Bt50-billion issue.

The July bonds, which have a five-year maturity, have excited great interest from the public due to the attractive coupon rates of 3 per cent for the first two years, 4 per cent for the third year and 5 per cent for the final two years.

"I'm confident they will sell out. The ministry initially planned to issue Bt30 billion's worth only, but banks suggest the market has a healthy demand, so Bt50 billion's worth will be offered, with subscription priority to senior citizens and low-income earners," said Korn.

The minister said the impact of the government-bond issue had caused commercial banks to hike their deposit rates in order to compete with the returns offered by the bonds. The spread between banks' deposit and lending rates has been narrowed as a result.

The July bonds will be distributed to the public via the seven banks' networks pro rata, based on their deposits.

Bangkok Bank takes the biggest portion at 24 per cent (Bt12 billion), followed by Krung Thai Bank at 20 per cent (Bt10 billion), Siam Commercial Bank at 17 per cent (Bt8.5 billion), Kasikornbank at 16 per cent (Bt8 billion), Bank of Ayudhya at 9 per cent (Bt4.5 billion), TMB Bank at 8 per cent (Bt4 billion) and Siam City Bank at 6 per cent (Bt3 billion).

The banks will not charge a distribution fee to either the government or investors.

The first batch of Bt15 billion's worth will be sold on July 13-14 to people aged 60 and over.

The second Bt15 billion's worth will be available on July 15-17 to the elderly and other groups of retail investors, while the final Bt20 billion's worth will go on sale on July 17, 20 and 21 to retail investors.

The minimum investment is Bt10,000 and the maximum Bt1 million for each subscriber.

Meanwhile, Bank of Thailand Deputy Governor Atchana Waiquamdee said the issue of the government bonds would slightly reduce excess liquidity in the system.

The bonds will absorb liquidity from the economy, but public spending will eventually bring the money back to the economic sector.

"The central bank has monitored liquidity at a level that keeps the policy interest rate at the current level," she said.

The bond issue will not cause market interest rates to rise, she added, because the 3-per-cent yield in the first two years is only slightly above the high end of the range of 1.5-2.75 per cent for two-year bank deposits.

Moreover, the July bonds will account for only 0.5 per cent of overall deposits of Bt1.6 trillion in the system.

Atchana said it was difficult to predict the rate of inflation over the next five years. The returns offered by the bonds are attractive for those who might be concerned about interest rates surging in the future.

"Savers may realise that deposit interest rates are very low and will possibly increase. The Finance Ministry has therefore introduced features that are attractive [step rates], so they will not be at much risk if market rates do climb," said Atchana.