The scale up of special purpose bonds is likely for several reasons:
I. Policy support and economic stimulus
1. Infrastructure building
Special purpose bonds are often used to finance infrastructure projects. Governments may increase the scale of such bonds to boost economic growth, especially during periods of economic slowdown. For example, building new transportation networks (roads, railways, bridges), energy related infrastructure (power plants, grids), and urban public facilities (water treatment plants, waste management facilities). These projects not only create immediate demand for construction materials and labor but also have long term positive effects on economic productivity.
2. Regional development
In regions with development needs, special purpose bonds can be a crucial tool. For underdeveloped or emerging regions, larger scale issuance can support the construction of basic facilities, promote industrial development, and attract investment. This helps to balance regional development disparities within a country.
II. Market demand and investment environment
1. Low interest rate environment
In a low interest rate environment, investors are often on the lookout for relatively stable investment products with reasonable returns. Special purpose bonds, especially those with government related guarantees or clear revenue generation models (such as toll based transportation projects), can be an attractive option. The demand from institutional investors like banks, insurance companies, and pension funds may prompt an increase in the scale of issuance.
2. Diversification of investment portfolios
For investors, special purpose bonds offer diversification benefits. They have different risk return characteristics compared to traditional corporate bonds or equities. As the investment community becomes more sophisticated and risk averse, the demand for special purpose bonds may grow, leading to the possibility of an increased scale of issuance.
III. Project specific financing needs
1. Large scale and long term projects
Some projects, such as major urban renewal projects or large scale environmental protection projects, require substantial and long term financing. Special purpose bonds can be tailored to meet the specific financing requirements of these projects in terms of tenor and repayment sources. As more such large scale projects are planned and initiated, the scale of special purpose bonds is likely to be scaled up.
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