Tight spreads in PH bond floats

INVESTORS have demonstrated their high level of confidence in the Philippine economy with the tight spreads of the country’s dollar- and renminbi-denominated bonds issued earlier this year, Finance Secretary Carlos Dominguez III said.

Tight spreads offer low interest rates, which indicate that the issuer has less chances of defaulting on its bond sale, while higher spreads mean that investors view the bond as having bigger chances of its issuer defaulting, and thus, high interest rates are offered to attract buyers of such riskier investments.

Dominguez said another factor that has contributed to the tight spreads of bonds issued by the Philippines in the offshore market was the fact that the government is now selling securities to raise funds for its infrastructure investments, rather than to cover a ballooning budget deficit.

“We are funding our ‘Build, Build, Build’ program. This is for investment and not for covering our budget deficit because we’re spending too much. This is actually investment money that we are putting in,” Dominguez said.

Last June 19, five of Japan’s leading financial institutions gave their full backing to the Philippines’ first stand-alone yendenominated “Samurai” bonds issue set in September or October this year.

In separate meetings with Dominguez in Tokyo, top officials of Japan’s five largest banks – the Mitsubishi UFJ Financial Group, Nomura Holdings Inc., Mizuho Bank Ltd., Sumitomo Mitsui Banking

ing Corp. (SMBC), and Daiwa Securities Group Inc. – said they expect strong demand for the Philippines’ “Samurai” bond float.

The “Samurai” bond issue planned for the latter part of this year is also the first one to be issued by the Philippine government without any guarantee from a Japanese institution.