Untangling bond market credit ratings

The Thai bond market now averages 65 billion baht in daily transactions — a remarkable increase from just 1 million baht in 1994.

- PICHAMON KEAKIJ DOLLADA KASARN

Bonds serve as vital financing instruments for both public and private sectors. With such significant values at stake, investment decision tools become crucial, particularly Credit Ratings issued by Credit Rating Agencies (CRAs). Companies seeking to raise funds through bonds must engage CRAs to assess their credit ratings. These ratings influence bond yields and play a key role in attracting investors.

However, recent market experiences have shown that credit ratings don’t always capture the full spectrum of risks. Cases of “fallen angels” — where bonds face severe downgrades — have demonstrated how rating changes can significantly impact both individual securities and broader market confidence.

This reality highlights the important role of CRAs, which demands a thorough evaluation of business and financial factors, along with continuous monitoring of market conditions. Additionally, CRAs need transparent procedures, accurate data, and effective management of potential conflicts of interest. They must also ensure investors have comprehensive access to rating information.

Thailand currently has two credit rating agencies: TRIS Ratings and Fitch Ratings. Both operate under the Securities and Exchange Commission’s (SEC) supervision, which maintains a white-list approval system. To retain their approved status, CRAs must follow international standards, provide regular reports, and allow SEC inspections. Breaking these rules can lead to licence revocation.