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Gov’t eyes global bond sale with longer tenors

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By Elijah Joseph C. Tubayan, Reporter

THE GOVERNMENT is readying the offer of dollar-denominated offshore bonds, looking at longer tenors as US treasury yield spreads tighten in the face of uncertainty in the world’s biggest economy.

National Treasurer Rosalia V. De Leon told reporters late on Thursday that the government will sell “$750 billion to $1 billion” in its upcoming global bond sale that is usually conducted in January.

“We are watching markets closely, including trade tensions, the US government shutdown and related emerging market events. We are looking at long tenors and actively seeking a good market window,” Ms. De Leon said in a mobile phone message.

She said that the government is looking at selling longer-dated securities as the US treasuries’ “yield curve is flat”.

The Department of Finance (DoF) had said in May last year that the government was planning to front-load its global dollar-denominated bond offer to the latter half of 2018 than in early 2019, in anticipation of further rate hikes seen from the US Federal Reserve.

But the Fed has lately been increasingly cautious in its policy outlook in the face of mounting macroeconomic risks, reducing pressure on the Philippines to offer the global bonds in advance.

Rizal Commercial Banking Corporation economist Michael L. Ricafort said that the partial US government shutdown since mid-December and the lingering US-China trade spat has brought down long-term US bond yields, which in turn should make emerging market long-term debt issues more attractive.

“The partial US government shutdown has partly added to expectations of slower US/global economic growth, on top of the adverse effects of the US-China trade on economic growth. Thus, this could result in some easing of US/global inflation, leading to more dovish assessment by Fed officials (in terms of less Fed rate hikes estimated for 2019) and partly led to lower 10-year US government bond yield to 2.50% levels, the lowest in nearly a year and down from the high of 3.26% posted on October 9, 2018,” Mr. Ricafort said in a mobile phone message on Friday.

“This resulted in lower borrowing costs for the government, especially for the upcoming US dollar (ROP) bond issuance as early as this month… longer tenors usually preferred especially for foreign borrowings to better manage maturities and better manage forex risks as well.”

In January last year, the government raised $2 billion from the sale of 10-year dollar-denominated bonds that fetched a three percent coupon, consisting of $750 in new money and $1.25 billion worth of outstanding debt redeemed in a bond swap as part of liability management that reduced overall interest expense.

The government borrows to pay maturing debt and plug its fiscal deficit that is capped at an equivalent of 3.2% of gross domestic product for this year.

It has also programmed a 75-25 borrowing mix in favor of local sources this year until 2022.