Bond and Debt Securities

 

Bond and Debt Securities​

Debt security is a financial instrument representing a legally binding loan agreement between a creditor and a debtor, where a creditor is a buyer or an investor and a debtor is an issuer. In return for the loan, the buyer will receive interest or discount from the par value on a specified rate and time. Holders of debt securities are paid before shareholders in the event of the issuer's liquidation.
In general, the main features of debt securities include issuer name, par value, maturity date, coupon rate, coupon payment date, type of debt security and covenants.​​​​​​ต
 

The Bank of Thailand's responsibilities concerning government debt securities

To ensure the effective operations of bond and debt securities services, the Bank of Thailand has serveral important responsibilities as follows:
  • 1.

    The Bank of Thailand's responsibilities concerning government debt securities

  • 1. Coordinating with the issuers in planning for new issuance of debt securities in the primary market. In addition, the Bank of Thailand issues the Bank of Thailand bonds used as monetary policy tools to stabilize liquidity and interest rate in financial market. Issuance of debt securities in the primary market also serves to enlarge investor base which helps enhance the development of financial and debt securities markets.
  • 2. Overseeing and managing issuance of government debt securities in the primary market.
  • 3. Serving as a registrar and paying agent.
  • 4. Appoiting primary dealers to be trading counterparties with the Bank of Thailand in undertaking monetary policy.
  • 5. Participating with the Ministry of Finance or other related government agencies in developing debt securities market such as developing issuance of new government debt securities in primary market, improving liquidity and efficiency of secondary market, and enhancing clearing and settlement infrastructure. ​​

splitCol1

Participants in government securities market

 

  • 1

    Participants in government securities market

  • 1. Issuer: An entity that issues a financial instrument which represents a legal obligation between a creditor (buyer or investor) and a debtor (issuer). Issuers of government securities include the Ministry of Finance, the Bank of Thailand, Financial Institutions Development Fund, and state-owned enterprises.  
  • 2. Bondholder: An owner of government securities, including purchaser, transferee, and winning bidder. Bondholders can be individuals, juristic persons or financial institutions.
  • 3. Custodian / Depository: A financial institution that holds securities on behalf of bondholders for safekeeping. Some commercial banks serve as custodian, while Thailand Securities Depository Co., Ltd. (TSD) plays the role of central depository for scripless securities. 
  • 4. Issuing agent / Selling agent:  A financial institution appointed by the issuer to conduct the issuance / sale of debt securities under mutual agreement. The Bank of Thailand acts as an issuing agent of government securities, while some commercial banks and specialized financial institutions are authorized as selling agent. 
  • 5. National Interbank Transaction Management and Exchange Co.Ltd. (NITMX): A company jointly established by Thai commercial banks to process inter-bank payment transactions across member banks through electronic media both domestically and overseas.
  • 6. Entities accepting securities as collateral include Government agencies, financial institutions and individuals such as court, Metropolitan Electricity Authority, commercial banks, specialized financial institutions and individuals. Collateral can be used as bail to court, for electricity consumption, and for loan agreement.
  • 7. Registrar and Paying Agent: An entity in charge of keeping records and making payment of interest and principal to bondholders such as the Bank of Thailand.
  • 8. Government authority: Government agencies that are legally authorized to verify ownership of bond, or seize bond. These agencies are, for example, Revenue Department, court and Legal Execution Department. ​

splitCol2

Introduction to Investment in Debt Securities​

สำหรับผู้สนใจเรื่องราวต่าง ๆ ที่เป็นพื้นฐานเกี่ยวกับตราสารหนี้ ​​​​และการลงทุนในตราสารหนี้ สามารถเรียนรู้เนื้อหาเบื้องต้น ได้จากหัวข้อที่เกี่ยวข้อง ดังนี้

Unit 1: ISIN and Symbol

At present, each issue of debt security has a unique identification code comprising alphabets and numbers. There are 2 types of debt securities identification codes in Thailand: 1) International Securities Identification Number (ISIN) is used to identify the issue of debt securities traded in primary market and securities for transaction relating to the Thailand Securities Depository Co. Ltd. (TSD) operated at the BOT. 2) Thai BMA Symbol is used to identify the issue of debt securities traded in secondary market both by direct negotiation and by Bond Electronic Exchange (BEX).​

Unit 2: Benefits of Debt Securities

Debt securities have several benefits. Issuers can raise fund domestically, have less reliance on foreign source of funds, and manage their fund more effectively. Likewise, bondholders receive return in terms of interest or discount. In addition, they may use debt securities as collaterals placed with government agencies such as for construction contracts or placed with financial institutions for bank loan.

Unit 3: Pricing or Valuation of Debt Securities

Price or value of debt securities is the present value of the stream of cash flows received from the remaining interest and principle. On the other hand, it can be called the "time value of money". It can be approximately calculated whether the price should be above or below its par value by comparing the market rate (the required rate of return) with the coupon rate (the rate specified on the security).

Unit 4: Government Bond Yield Curve

Government Bond Yield Curve is a curve representing a relationship between yield and the remaining time to maturity of government debt securities; whereby Yield means a return received from a security, usually presented annually as a percentage. For example, yield of a five-year government bond equaling 2.39 percent per year means the bond holders will receive an average rate of return 2.39 percent per year. Time to Maturity means the length of time remaining until the maturity, counting from present date to maturity date. For example, the time to maturity of the ten-year National Savings Bonds issued on 2 September 2002 is 3 years and 8 months, as of 2 January 2009.

Unit 5: Risks Incurred from Investing in Government Debt Securities

There are some risks when investing in government debt securities. The major risks include 1) interest rate risk or price risk or market risk ​ 2) credit risk or default risk 3) liquidity risk 4) inflation risk

Unit 6: Debt Securities Markets

Debt securities can be traded through both primary market and secondary market. The primary market is the market where the debt securities are sold to the investors for the first time. The secondary market means a market that provides for the purchase or sale of previously sold or bought securities taken place in the primary market. Seller in the secondary market is one who holds the securities and wishes to sell them. Trading in the secondary market can be carried out via over the counter (OTC) or Bond Electronic Exchange (BEX).

Recent Searches :

Popular Search Terms :

Exchange Rate Covid19