P135-B T-bond auction set in Q1

MANILA, Philippines – The government has programmed 10-year Treasury bond (T-bond) offerings in the first quarter of 2016 along with other tenors as it seeks to lock in favorable interest rates for long-term funding early in the year.

The Bureau of the Treasury said it is planning to borrow P135 billion from the local debt markets from January to March next year.

Broken down, the government plans to issue P60 billion worth of T-bills and P75 billion in T-bonds, similar to what was programmed in the fourth quarter of 2015.

Changes were made, however, on the tenors of T-bonds. From only three and five-year securities until this month, 10-year T-bonds will also be floated in the first three months of 2016.

T-bills and T-bonds are investment vehicles used by the government to borrow funding from local investors. The latter hold on to these instruments with promise from the state to give back their money with interest at a future time.

“The government is taking advantage of the current low interest rate environment and the huge liquidity in the system to lock in long-term funding,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc., in a text message.

T-bills have shorter terms of three, six and 12 months, while T-bonds are longer-dated papers which may range from two to 25 years.

“They want to frontload their long-term borrowing ahead of the possible interest rate hikes in the coming years because of the Fed,” said Nicholas Antonio Mapa, economist at Bank of the Philippine Islands, in a phone interview.

The US Federal Reserve raised interest rates by 25 basis points for the first time in nearly a decade this month, ushering in an end to cheap credit that has engulfed the globe since the financial crisis in 2008.

This, in turn, has resulted into higher rates in emerging markets such as the Philippines as investors return to the world’s safe haven for better yields and lower risks.

BTr data showed the mere anticipation of the Fed hike early in the year had caused the short-term benchmark 91-day T-bill rate to rise to 1.773 percent in November from 1.397 percent in March.

“Considering the good cash position of the government, I think it will still be able to lock in favorable rates from its borrowings next year despite the re-pricing,” Mapa explained.

The National Government borrows from the domestic and foreign markets to finance its budget deficit and pay existing debts.

As of October, the deficit - which indicates expenditures outstrip revenues - totaled P52.574 billion, only a little more than a fifth of this year’s cap of P283.7 billion.

A narrower deficit had allowed the government to borrow funds to replace high-yielding and shorter dated debts with liabilities with low interest and longer payment terms.

For the first 10 months, long-term debts accounted for 88.7 percent of the total debt stock, higher than the 73.6 percent it occupied in 2010. Average interest rate is also at a lower 5.09 percent, from 5.53 percent in end-2013.