Nov. 5 (Bloomberg) -- The Philippines should exchange more of its short-dated bonds for longer tenors with bigger sizes to spur trading, central bank Governor Amando Tetangco said.

“There were recent initiatives to exchange short- for long-term issues but a significant potential remains untapped,” Tetangco said yesterday at a briefing for Bloomberg clients in Manila. Boosting turnover in the market “is possible only if the various tenors maintain sufficient depth,” he said.

The Philippines in January sold $3 billion of new five- and seven-year bonds in exchange for existing notes in the nation’s fourth debt exchange. The move helped create more actively traded issues against which corporate bond sales can be benchmarked and extended the maturity profile of the nation’s debt. Tetangco said more than half of the notes sold by the government since 2000 have had maturities of a year or less.

“This significant amount of short-term debt invariably puts pressure on managing liquidity and fiscal authorities have to fund frequently maturing obligations,” the central bank chief said. “The shorter-term debt profile also helps explain lower trading activity. The net effect is that our long-term treasury issues tend to be rather illiquid.”

Still, investors’ appetite for longer-dated Philippine debt is questionable as the nation struggles to contain its budget deficit.

Last month, auctions to sell seven- and 10-year bonds failed as investors sought higher returns than the government was willing to pay. The deficit totaled 237.5 billion pesos ($5 billion) for the first nine months, equivalent to 95 percent of the official projection for this year’s shortfall to reach a record 250 billion pesos.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

Last Updated: November 4, 2009 23:33 EST