Gov't urged to prioritize retail T-bonds

Manila, Philippines -  First Metro Investment Corp. (FMIC) has urged the government to issue retail Treasury bonds ahead of the planned bond exchange.

FMIC president and CEO Roberto Juanchito Dispo said they are set to submit to the Bureau of Treasury before the end of this month, a proposal to hold the bond swap exercise by September or October this year.

He said this could be followed by the issuance of the retail treasury bonds (RTBs) in November.

RTBs are peso-denominated bonds that have minimal risk and fixed a coupon rate. These give quarterly interest and come in various bond terms.

Bond swap, on the other hand, is a strategy in which an investor sells a bond and at the same time purchases a different bond with the proceeds from the sale.

According to Dispo, they would also propose the issuance of only P100 billion RTBs from the previous level of P175 billion.

“An economical size is P100 billion. We will advice against issuing large volumes because it creates a phenomena which we call indigestion. Indigestion meaning if you supply so much papers to all the players, and their books are all stuffed with 20 and 25, all of them will become suppliers of papers then there will be no buyers because all are satisfied,” he said.

He said the issue size of P100 billion could also apply to the bond swap.

The FMIC official said they would also propose to 10, 15, 20 and 25-year tenors.

“Those are the destination tenors, meaning you can switch your bonds to either 10,15,20 or 25,” he said.

“Because those are tenor buckets with little maturity as far as the government is concerned. So even if you add more volume to those tenors, the debt servicing capability will not be impaired,” he explained.

For RTBs, he said they are looking at two tenors- 15 and 25. “There is little outstanding volume for 15 years now in the market so there is a need to replenish that to add more supply so that it will become benchmark bonds,” he said, justifying the proposed tenors for RTBs.

Asked if the government would need to issue both RTBs and debt swap instruments, he said it would be necessary for liability management of the National Government.

“The objective is to stretch out maturities and remove the bunching of maturities so you’re spreading it out so debt servicing will be more manageable and administratively efficient as far as there debt servicing program is concerned. Then RTBs, there were two maturities already, there’s one in August and another in September. There are loyal followers of RTBs so they need to reinvest those papers. So it is incumbent for BTr to provide fresh RTBs to these investors,” he added.

In July 2011, BTr issued a total of P323.4 billion worth of fresh 10- and 20-year bonds in exchange for P292.5 billion worth of eligible securities offered by investors.

In February this year, Treasury raised P179.796 billion from the sale of 15- and 20- year RTBs, yielding 5.375 percent and 5.875 percent, respectively.