GS interest rates likely to decline

MANILA, Philippines -  Interest rates on the secondary market for government securities (GS) are seen to drop further as lower inflation, strong foreign portfolio investments and limited supply of papers will continue to boost demand for the virtually risk-free debt papers.

In a briefing yesterday, First Metro Investment Corp. expects the yield on the three month debt note to range from 1.75 percent to two percent while the interest rate on the five-year debt paper is seen to hover at 2.25 to 2.375 percent this year.

The interest rate on the 10-year notes is seen at 2.675 to 2.8 percent, 20 years at 3.375 to 3.5 percent and 25 years at four to 4.125 percent.

Reynaldo Montalbo Jr., senior vice-president and head of FMIC’s Treasury Group, said the country’s macroeconomic fundamentals remain strong, which should keep the Philippines on the radar of foreign investors.

Montalbo said overflowing liquidity and the government’s strong cash position will continue to keep the attractiveness of the local bond market.

“The ample supply of liquidity from OFW remittances and BPO revenues will continue regardless of the events in China, Japan and the US,” he said.

FMIC said investors may cash in profits in the third quarter but demand is expected to resume and push the yields down to low yields in the fourth quarter.

FMIC senior vice-president and head of Investment Banking Group Justino Ocampo expects more corporations to tap the local bond market for the rest of the year to take advantage of low interest rates.

Total debt issuances in January to May declined to P220.19 billion from P386.65 billion due to the absence of retail treasury bond issuances during the first quarter as compared to P179 billion the previous year.