Higher rates seen for Philippine bonds

MANILA, Philippines – Despite waiting for market volatility to subside, higher interest rates are expected once the Aquino administration returns to the foreign bond market for the last time by June, an official said yesterday.

“Right now, the trajectory is for interest rates to rise overall,” National Treasurer Roberto Tan told The STAR in a text message.

“What I’m hoping for is for the market to settle and the level of uncertainty to diminish,” he said.

Global financial markets have been roiled a few weeks into the new year as concerns over China’s slowing growth reignited, pushing the Philippine Stock Exchange index to the bear market last Monday.

At the bond market, meanwhile, the government was forced to cap rates of the reissued 10-year Treasury bond last Tuesday, awarding only P22.18 billion against a P25-billion program.

On what could be a prelude to rates on a global peso bond offer planned later this year, the debt paper fetched a higher rate of 4.218 percent versus 3.625 percent during its maiden issue last Sept. 9.

“We are hopeful that we can execute a global bond and liability management deal during the first half of the year,” Tan said.

The Aquino administration, which traditionally raises funding offshore during the start of the year, has programmed a $750-million bond issuance together with a bond swap worth $1.25 billion.

Tan earlier said the central bank and President Aquino have already approved of the transaction. However, he said the government is yet to receive approval from the US on its debt shelf renewal.

The shelf mandates the allowable amount of securities an issuer can float in US dollars. The Philippines reportedly applied for a fresh $5 billion authority on top of the undisclosed remaining ones.

“Once we are ready to issue, then we will consider market conditions and make a decision when we believe it is the optimal window for the transaction,” Tan said.

The Philippines, Asia’s most aggressive foreign debt issuer, has taken advantage of its strong fundamentals to raise funding in the foreign markets at cheaper costs.

In January 2012, for instance, $1.5 billion was raised at “the lowest yield” for 25-year global bonds at five percent. In the same month of 2014, 10-year papers were floated with 4.2 percent interest amid huge demand.

But for Nicholas Antonio Mapa, economist and research officer at the Bank of the Philippine Islands, the government would have no choice but to deal with higher rates this time around.

“They are just waiting for the right timing because with the current market situation, rates could really rise. At least once they settle, we can expect a marginal decrease in rates,” Mapa said in a phone interview.

Luz Lorenzo of Maybank ATR Kim Eng agreed, saying it would be better to have the market calm first before proceeding with any issuance.