Philippines Boosts Domestic Debt as It Shuns Global BondsMax Estayo and Clarissa Batino
The Philippines will boost domestic bond sales to the most since at least 2005 next quarter as it seeks to raise nearly all of its debt requirements locally amid record-low interest rates and a strengthening peso.
The Bureau of the Treasury will increase borrowing via debt auctions to 150 billion pesos ($3.7 billion) from 120 billion pesos in the three months through June, Treasurer Rosalia de Leon said in a memo to dealers today. At each of three monthly auctions, the government will offer 30 billion pesos of either three-, five- or seven-year bonds and 20 billion pesos of bills, according to the memo. Some 25 billion pesos of bonds and 15 billion pesos of bills were sold at the offers this quarter.
The Philippines has informed the central bank it will raise almost 100 percent of its debt needs locally in 2013, Finance Secretary Cesar Purisima told reporters today, ending a decade-long run of global sales. Bangko Sentral ng Pilipinas cut the rate on 1.86 trillion pesos of funds in its special-deposit accounts last week and may limit access to its reverse-repurchase facility to help manage capital inflows, Monetary Board Member Felipe Medalla said separately today.
“There might be a movement of funds from the SDA to the auction,” de Leon said in a March 15 interview. “We’re still seeing oversubscription in auctions so yields won’t necessarily go up even if we increase the volume.”
The country plans to borrow 730 billion pesos of debt this year, compared with 717 billion pesos in 2012 that included $1.5 billion of dollar bonds, de Leon said earlier this month. The 150 billion peso target is the biggest since at least 2005, based on comparable data available on the Treasury’s website.
The yield on the 5.875 percent bonds due January 2018 rose 10 basis points to 3.27 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate is at the highest level in more than a week. The peso fell 0.3 percent to 40.713 per dollar, according to data from Tullett Prebon Plc. It remains the best performer among emerging markets in the past 12 months, gaining 5.7 percent.
President Benigno Aquino’s administration is narrowing the budget deficit as a proportion of GDP, extending debt maturities and cutting foreign-currency risks in pursuit of an investment-grade credit rating. The $225 billion economy expanded at the fastest pace in two years in 2012, surpassing neighbors in Southeast Asia, helped by a record-low 3.5 percent benchmark rate and inflation near the lower end of a 3 percent to 5 percent target range.
The average maturity of Philippine notes has lengthened to 10.4 years from 6.7 years in 2010 after several bond exchanges, de Leon said March 15. The ratio of debt to gross domestic product was 51.4 percent at the end of 2012, compared with 54.7 percent in 2008, she said.
“The additional supply is well within their borrowing program, and amid benign inflation and ample liquidity,” said Michael Calleja, treasury head at Manila-based Bank of the Philippine Islands. “The plan will also support the recent cut in the SDA as the belly sector can be an alternative destination for the funds,” he said, referring to securities with maturities of three to seven years.
The Philippines has the highest junk rating at Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.
The Treasury is studying the sale of inflation-linked bonds and plans to offer retail notes in the latter part of 2013, de Leon said. It will continue to repurchase expensive foreign-currency bonds “if opportunities are present” and doesn’t discount conducting a debt exchange to further extend maturity, she said.
“Significant progress” has been made in shifting toward a so-called single-price convention that will add liquidity to the bond market by letting tax-exempt institutions like state-owned pension funds trade, de Leon said.
The Philippine bond market remains one of the smallest in the region and was “relatively stagnant” at 37.7 percent of GDP in 2012, from 36 percent in 2007, she said. That compares with 75 percent in Thailand, 85.3 percent in Singapore and 106.6 percent in Malaysia, according to the treasurer.
Average interest on domestic debt has dropped to 6.5 percent from 7.1 percent in 2010, de Leon said. Treasury bill yields fell to all-time lows this quarter, with the 91-day notes at a record 0.05 percent in February.
“We have our eyes on not only deepening the market but making sure we are creating the right structure within the Philippine bond market,” Purisima said today. “The bond market is an important pillar if we are to build a sustainable infrastructure for growth of the economy.”