New baht bond issue is well suited to the times

First, the issuance of baht bonds, instead of borrowing in foreign currencies, will alleviate all foreign exchange risks. The liquidity in the domestic market is currently more than enough for this amount of funding.

The interest to be paid on the bond will also generate income for Thais.

Second, the six year maturity seems to be appropriate to use of the funds in various investments in the Thai Khemkhaeng package. It is believed the repayment period will fit in well with the projected revenue of the government in future.

Thirdly, this issuance is in the form of savings bonds, not investment bonds, as the Ministry of Finance conventionally did in the past.

Selling investment bonds to a few institutional investors would of course be easier and faster, while the sale of savings bonds to the public would take much more effort.

However, the Cabinet resolution this time really takes care of the needs of people. Currently, the interest rates on all kinds of deposits at banks are very low.

The six-year bond normally offers a reasonably higher rate which a lot of depositors who rely on interest income for their living are waiting for.

The best condition of this issuance is that the bond will be available for subscription, with elderly savers who are over 60 years of age having the first option.

The remaining bonds could then be offered to those under 60. Furthermore, the issuance also stipulated that the maximum value for each subscription be limited to Bt1 million.

With these conditions, at least 100,000 Thais would have access to the bonds and pensioners who normally do not have other regular monthly income would have priority to buy them.

The only missing feature is the allowance for charity foundations - which rely mainly on interest income from bank deposits or bonds - of a priority to buy this bond, similar to individuals over 60 years of age.

If this feature can be added on with a more reasonable limit of, let's say, Bt10 million, the issuance would receive more thumbs up.

The director-general of the Public Debt Management Office said that the bonds were expected to offer average returns of around 4 per cent per year while the six-year government bond in the Thai bond market were quoted last week at 3.64 per cent per annum.

I believe it is alright to fix the interest on the savings bond at a higher rate than that of the investment bond, especially when this savings bond is intended for the elderly and distributed in small lots to a large number of holders, not concentrated in the hands of few rich ones.

Until Next Monday.

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