Finance dep’t in no rush to issue dollar bonds

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Department of Finance (DoF)

THE GOVERNMENT is in no hurry to issue dollar bonds due to the current volatility on global markets, the Finance department said.

“We are waiting for the right moment. Everything is in the timing, so we’re just waiting for the right moment,” Finance Secretary Carlos G. Dominguez III told reporters on the sidelines of the Senate plenary deliberations for the 2019 budget.

“We thought that it would be better to do it earlier than later but it didn’t turn out to be an ideal situation,” Mr. Dominguez added.

In May the Department of Finance (DoF) said it will front load its global dollar bond offer to the latter half of the year rather than early 2019, in anticipation of further rate hikes from the Federal Reserve.

Mr. Dominguez said that the government remains comfortable with the level of funds on hand.

“There is no pressure. We (can) take our time. Remember the usual schedule is towards the end of January. But we wanted to see if we could do it earlier rather than later but conditions are not there. Better to be prepared to do something rather than be forced to do it,” said Mr. Dominguez.

The factors that were considered in the timing of the dollar bond offer include the 90-day truce between China and the US, and declining world oil prices.

“Big uncertainties were overhanging the market. There was no agreement yet on the trade issues and prices of oil were spiking. Now I think it seems that the market is settling down, and our confidence in the longer planning horizon is possible,” Mr. Dominguez said.

Asked if it is still possible to float the bonds before year’s end, Mr. Dominguez said; “We’ll see. Of course, it’s possible.”

A bond trader said that US yields are still expected to decline even after an agreement between the US and China to hold off assessing new tariffs on each other for 90 days as they negotiate to resolve the trade dispute.

He also said that the Fed’s rate-setting body is under less pressure to tighten rates at its Dec. 18 meeting due to declining oil prices.

“With uncertainty due to the trade war, investors will seek safe havens like US Treasuries, and its effect is to lower interest rates. That’s what is happening today. But even if the US and China reach a settlement, that’s supposed to be better for riskier assets, but the mood remains wary. Right now there do not seem to ne concrete steps by China,” the trader said in a phone interview.

“It would be better for them if they postpone (the issue) if the outlook is for lower interest rates, which mean lower borrowing costs. The consensus is that the Fed will hike this December, and the expectation is for a strong US economy which can absorb the higher rates. But the lower oil prices have also lowered inflation expectations,” he added.

In January, the government raised $2 billion from the issue of 10-year dollar bonds, with $750 million issued to new investors at a 3% coupon, while $1.25 billion was applied to a liability management exercise.

In a separate statement, the DoF said that it is also still studying the timing for the retail Treasury bond issue that will fund the rehabilitation of Marawi City, as the government considers the funds pledged by development partners.

“We still have the budget in place and actually, we have until 2022 to complete the funding. So we will review the pledges that we got and see the exact timing of them so that we can time the Marawi bonds as well,” said Mr. Dominguez.

The government raised P35.1 billion worth of concessional loans and grants at a pledging session on Nov. 28 for the reconstruction of Marawi.

Mr. Dominguez said that he expects the funds to come in “before the end of 2018 or early next year.”

The government is planning a P13.5-billion issue to fund Marawi reconstruction targeted at retail investors. The issuances will run until 2022. — Elijah Joseph C. Tubayan