STATE BORROWINGS VIA BONDS SALE NOW COSTLIER

The Bureau of the Treasury on Tuesday sold only less than half of its bond offering, which fetched higher bid rates from investors as Fitch Ratings’ downgraded outlook for the Philippines and the weaker peso made it more expensive to borrow.

The Treasury offered P35 billion in new 20-year bonds but awarded just P16.79 billion despite strong demand with P63.07 billion in bids.

National Treasurer Rosalia de Leon said the coupon rate of 5.125 percent for the bonds maturing in July 2021 was “aligned with the movement in secondary levels with curve extension.”

De Leon conceded that the bond yield was “partially” affected by the peso’s weakness and the “negative” outlook assigned by Fitch to the Philippines, a downgrade from “stable” previously. It, however, kept the investment-grade credit ratings for the country of “BBB.”

She said the annual rate was more impacted by the bond’s duration plus liquidity premium.

Treasury data showed that the average yield was only 12.5 basis points (bps) higher than the BVAL (Bloomberg Valuation Service) reference rate. A similar T-bond tenor issued in early 2019 had a higher coupon of 6.75 percent amid high inflation back then, Treasury data showed.

In a report on Tuesday, Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said Fitch’s revised outlook for the Philippines “would lead to some adjustments on the risk premiums in the Philippines, in terms of some uptick in local interest rate/credit costs and some healthy profit-taking in the local financial markets.”

“But hopefully these would be minimal/negligible, since there is still a chance to prevent an actual downgrade of the credit ratings from happening in the coming months,” Ricafort said.

He said the Philippines could avoid a credit ratings downgrade if it would speedup mass vaccination to further reopen the economy and shore up tax revenue collections to narrow the budget deficit, temper ballooning borrowings and repay debt.