Ministry of Finance Savings Bonds 3.25%

[AyG]

Bangkok Bank is currently promoting Ministry of Finance Savings Bonds B.E. 2557 #2 with a 3.25% coupon paid twice yearly and maturity of 3 years. (Link: http://www.bangkokbank.com/BangkokBank/PersonalBanking/BuildYourWealth/InvestmentsAndDeposits/Bonds/Pages/Bonds57.aspx )

That to me seems pretty reasonable compared with what's available for a 3 year fixed deposit account.

Unfortunately, the prospectus is only available in Thai.

Are there any pitfalls I should be aware of?

Thanks.

[falang07]

One of the pitfalls might be that you get 3.25% p.a. but it is not sure if the baht will not go lower by 20% or more. Otherwise, nothing special considering the long maturity.

[Choonpon]

Any risk in investing in this bond? Other than the long maturity date. Thank you.

[AyG]

One of the pitfalls might be that you get 3.25% p.a. but it is not sure if the baht will not go lower by 20% or more. Otherwise, nothing special considering the long maturity.

Not an issue if your base currency is THB.

What bothers me is the yield at 3.25% is well above the government bond yield curve, which is 2.46% at 3 years. What is the risk that creates the premium?

[fletchsmile]

I think it's similar in concept to National Savings Bonds that get issued in the UK.

http://www.nsandi.com/savings-income-bonds

They are designed for small retail investors. Even the UK govt from time to time issues with yields above govt bond rates, eg their children bond issue is 2.5% for 5 years compared to the 5 year yield on gilts of 1.87%

The min subscription is THB 1,000 and max THB 2mio, so definitely a retail issue rather than institutional.

Eligible Entities: Individuals with Thai nationality or residency in Thailand, the Thai Red Cross Society, foundations, associations, cooperatives, temples, government educational institutions, government hospitals, and non-profit juristic persons

Non-eligible Entities: Banks, finance companies, securities companies, credit foncier companies, asset management companies, insurance companies, the Government Pension Fund, Provident funds, private funds under management of financial institutions, mutual funds, group of persons, corporations, the Social Security Fund, state enterprises, companies, partnerships, profit seeking juristic entities, condominium juristic entities, housing estate juristic entities, private hospitals, and private educational institutions

Taps another source of funding for the government, and socially promotes savings for the people.

Cheers

Fletch

Edited May 31, 2014 by fletchsmile

[Choonpon]

Is there any possibility of the government defaulting in payment of the bond? For example upon maturity we are not able to withdraw out the principle sum. Any advice? Thank you.

[AyG]

Is there any possibility of the government defaulting in payment of the bond? For example upon maturity we are not able to withdraw out the principle sum. Any advice? Thank you.

It's always a possibility, albeit an exceedingly remote one.

Unless anyone has a better informed opinion, I think it's as safe as putting the money in a Thai bank, if not safer.

(Caveat, I haven't read the prospectus yet, so am not 100% sure it's backed by the full faith and credit of the Thai government.)

[jbaldwin]

Is there any possibility of the government defaulting in payment of the bond? For example upon maturity we are not able to withdraw out the principle sum. Any advice? Thank you.

It's always a possibility, albeit an exceedingly remote one.

Unless anyone has a better informed opinion, I think it's as safe as putting the money in a Thai bank, if not safer.

(Caveat, I haven't read the prospectus yet, so am not 100% sure it's backed by the full faith and credit of the Thai government.)

These are only available to Thai citizens or foreigners with permanent residency.

[AyG]

These are only available to Thai citizens or foreigners with permanent residency.

Sadly, you're right about that. The website actually reads:

"Individuals with Thai nationality or residency in Thailand" - not permanent residency.

I messaged Bangkok Bank and they replied that you have to have a Thai ID card, so the website is inaccurate.

[Pib]

Here's a cut and paste of the eligibility and non-eligibility requirements take from this Bangkok Bank wepage: Link

And where it says, "Individuals with Thai nationality or residency in Thailand," I wonder what the true definition of "or residency in Thailand" means. But since I have a Yellow Book which is nothing more than proof of residency in Thailand I'm thinking I (one each farang) could buy the bonds.

[Pib]

These are only available to Thai citizens or foreigners with permanent residency.

Sadly, you're right about that. The website actually reads:

"Individuals with Thai nationality or residency in Thailand" - not permanent residency.

I messaged Bangkok Bank and they replied that you have to have a Thai ID card, so the website is inaccurate.

I think I would still contact Bangkok Bank "again" for more clarification...maybe call them or go to a branch. My experience with dealing with any customer support centers (even in FarangLand) is a person can many times get widely varying answers (some of which are incorrect) especially if the customer support center reps have received little or no training on a particular products/issues.

The part about "or residency in Thailand" may indeed allow farangs who can prove residency in Thailand, like maybe having a Yellow Book or whatever satisfies the bank, to buy the bonds. Then again, the website could just be wrong.

Below is how Google Translate translates the Prospectus Summary (in Thai only). Notice it uses the "Or resident in Thailand" phrase also.

Natural persons who are nationals Thailand Or resident in Thailand, the Thai Red Cross Society Foundation Cooperative measuring educational institutions . State Hospital Entity that has no purpose in the pursuit of profit .

( Unauthorized purchases include banks , finance companies . company companies company

Funds , insurance companies, fund management , pensions, civil servants ' Bonus . Funds Appropriated Funds Funds Financial Institution Fund managed by the Social Security office parties , corporate enterprises, companies and business units . Non- profit entity condominium Corporate housing Private Hospitals And private education )

Edited June 1, 2014 by Pib

[AyG]

It does mean with PR only. My question asked whether a passport was an acceptable document. (The website only lists ID card.) The answer was "no". Only residents with PR get an ID card.

[falang07]

One of the pitfalls might be that you get 3.25% p.a. but it is not sure if the baht will not go lower by 20% or more. Otherwise, nothing special considering the long maturity.

Not an issue if your base currency is THB.

I would not say so. If you exchange to something else now and in 3 years time the Baht would be 20% lower, you win, otherwise you still lose (since all would be about 20% more expensive because of the devaluation of THB, and regardless of the fact that your base currency is THB you will loose in real terms.

Edited June 1, 2014 by falang07

[AyG]

One of the pitfalls might be that you get 3.25% p.a. but it is not sure if the baht will not go lower by 20% or more. Otherwise, nothing special considering the long maturity.

Not an issue if your base currency is THB.

I would not say so. If you exchange to something else now and in 3 years time the Baht would be 20% lower, you win, otherwise you still lose (since all would be about 20% more expensive because of the devaluation of THB, and regardless of the fact that your base currency is THB you will loose in real terms.

And if you exchange to something else, in 3 years time the Baht could be 20% higher. Given that most of my expenditure is in Baht I wouldn't want to take on any foreign exchange risk. After all, exchange rates can be extremely volatile and impossible to predict.

And even if the Baht fell by 20%, I would not lose 20% since goods produced from resources sourced from Thailand would not change in price. Similarly, services would not increase in price. (OK, this is a bit simplistic, but the principle is there.)

[cocopops]

One of the pitfalls might be that you get 3.25% p.a. but it is not sure if the baht will not go lower by 20% or more. Otherwise, nothing special considering the long maturity.

Not an issue if your base currency is THB.

I would not say so. If you exchange to something else now and in 3 years time the Baht would be 20% lower, you win, otherwise you still lose (since all would be about 20% more expensive because of the devaluation of THB, and regardless of the fact that your base currency is THB you will loose in real terms.

And if you exchange to something else, in 3 years time the Baht could be 20% higher. Given that most of my expenditure is in Baht I wouldn't want to take on any foreign exchange risk. After all, exchange rates can be extremely volatile and impossible to predict.

And even if the Baht fell by 20%, I would not lose 20% since goods produced from resources sourced from Thailand would not change in price. Similarly, services would not increase in price. (OK, this is a bit simplistic, but the principle is there.)

It seems intuitive, but if I were a retiree, I'd be investigating the assumption there - is the cost of living in Thailand really more closely correlated with THB fixed income than other instruments?

Edited June 2, 2014 by cocopops