Timing to affect demand for planned dollar bonds
THE PHILIPPINE government may find it favorable to launch its planned dollar bonds as early as this month ahead of an expected rise in interest rates later this year, an analyst said, noting that it would be opportune ahead of major developments in the United States that could jolt financial markets.
Christopher Ma. Carmelo Y. Salazar, senior vice-president and group head of financial markets at the First Metro Investment Corp. ( FMIC), said the planned float of offshore bonds within the first quarter would be beneficial for the national government, with yields actually going lower as the year opened despite an anticipation of a Trump presidency and other key events slated this 2017.
“Timing is always the key for issuances. If they time it correctly, they should be able to get a good demand at a reasonable rate for them. Maybe an issuance during the first quarter — the first month, actually — would be good for the Treasury,” Mr. Salazar said
on the sidelines of an economic briefing at the Makati Shangri-la Hotel yesterday.
“I think it’s a good time considering that the view is interest rates will go higher. Doing it early will benefit the government as rates haven’t gone up yet.”
In November, National Treasurer Roberto B. Tan said the government is looking to offer at least $500 million in dollar-denominated securities during the first quarter of 2017 to raise funds for state programs and manage debts, marking the first time for the Duterte administration to tap the international bond market.
The government usually taps the international bond market during the first quarter of the year. In 2016, the Bureau of the Treasury launched an offshore bond sale in February for 25year dollar-denominated papers amounting to $2 billion, priced at a record- low coupon rate of 3.70%.
Mr. Tan said in a text message yesterday that the auction date has not yet been set for the 2017 dollar bonds. He earlier said that the government is eyeing to offer at least half $500 million in new money, while a still unidentified amount may also be raised to refinance existing debts. The bonds are expected to mature in 10 years, as the government usually prefers longer-termed instruments when making an offer in the offshore market.
The new administration has kept the borrowing mix at 80%- 20% in favor of domestic sources, which are deemed less risky without foreign exchange fluctuations.
Although market players generally prefer shorter tenors due to recent low yields, FMIC’s Mr. Salazar said 10-year dollar bonds issued by the Philippine governments are likely to remain “well- received” among foreign investors as seen in the past.
Mr. Salazar added that it would “make sense” to tap the overseas market during the early days of president- elect Donald J. Trump’s reign in the US: “He (Trump) is set to assume office, so what he can or will do is not yet going to happen that soon… Whatever he plans to do in terms of the fiscal policies will only take effect down the road.”
Markets are bracing for the impact of an expected fiscal stimulus in the US, coupled with as much as three more rate hikes by the Federal Reserve this year which could shake up the global economy.
The government relies on borrowings from both local and external sources to help fund its budget deficit and support a growing economy.