By Ditas B Lopez, Bloomberg
The Philippines is rethinking a plan to sell five-year jumbo bonds later this month as a falling peso and rising interest rates make borrowings more expensive.
“We are reassessing the plan to ensure that our borrowing strategy remains responsive to evolving market conditions,” National Treasurer Sharon Almanza said Thursday in reply to Bloomberg News queries. She said the government didn’t anticipate the Middle East situation will further deteriorate when the borrowing plan was prepared in June, adding a decision on this month’s bond sale will be out “soon.”
Jumbo bonds, also known as fixed-rate Treasury notes sold to institutional investors, typically raise a significant portion of the government’s funding requirements similar to retail bonds that are offered to individual investors.
The five-year Treasury notes planned for auction on Sept. 22 form part of this month’s P380 billion ($6.1 billion) debt offerings. The latest jumbo bond sale in February raised P235 billion.
Investors are cautious as the central bank may continue raising interest rates to curb inflation that remains elevated, said Helen Oleta, president of the Fund Managers Association of the Philippines in Manila. “Investors are waiting for better entry points and may be looking to reposition for next year,” Oleta also said.
With the escalation of the Middle East conflict driving oil prices higher anew, the Philippine peso fell to a new record low this week, in turn raising concerns about a surge in inflation. Price increases eased for three months in a row to hit 6.2% in July, still more than twice the target for the year.
For foreign investors, high inflation and weak local currency erode bond returns when converted back to their home currency, discouraging them to buy. Scrapping the jumbo bond sale would hamper government’s efforts to boost large-scale offerings and bolster liquidity. Pushing through with the plan, however, would entail higher interest expense at a time when efforts to rein in the budget deficit are already challenging.
The government needs more funds to ramp up spending to spur economic growth, and also has to refinance bonds that will fall due this year. Over P100 billion of retail Treasury bonds will mature is September, while another P50 billion will be due in October, according to data compiled by Bloomberg.
In a sign of waning investor demand for longer-dated securities, the bids for five-year Treasury bonds auctioned on Wednesday came in 1.2 times the offer size, smaller than the 3.1 times oversubscription at the previous sale of the same securities in early August.
