Yields on gov’t debt to stay low

YIELDS on government bonds are likely to stay low this year, with a slight pickup seen in the later months, as financing pressure remains subdued, ANZ Research said.

ANZ Research said in a note titled “Asian Rates Insight: Philippines – RPGB supply and demand in 2021” on Monday that while the government’s financing needs this year will remain large due to its bigger budget and wide fiscal deficit, the increase will remain modest from the record borrowings worth P3 trillion last year.

It said the government has several financing options which ease the pressure on the local debt market, such as tapping offshore sources while global liquidity remains elevated. The Bangko Sentral ng Pilipinas (BSP) is also sharing the burden with its accommodative monetary stance, it added.

This means government bond yields will remain subdued and only start rising, especially for longer tenors, towards the end of the year, ANZ Research said. It noted that the 10-year bond could see its rate climb by 50-60 basis points (bps).

“Helped by the vaccine rollout, the Philippine economy will likely recover, with an upward bias in long-dated yields and curve steepening in tandem with external markets. All said, we expect only modest upward pressure on RPGB (Republic of the Philippines government bond) yields, mostly in the latter part of 2021,” ANZ Research said.

Economic managers have capped the budget deficit at 8.9% of gross domestic product (GDP) this year. It plans to borrow P3.025 trillion to help fund its P4.5-trillion budget — 85% or P2.58 trillion from local lenders and the balance worth P442 billion to be raised offshore.

“Pressure on the RPGB market will be alleviated by the government’s strong cash position, with retail bonds and offshore borrowing remaining viable funding channels,” it said.

ANZ Research estimates that the government’s cash position stood at P1.34 trillion at end-October 2020.

“BSP is ready to provide funding if needed. The central bank has been proactive in sharing the fiscal burden to fight the pandemic,” it added.

It noted the central bank’s purchase of three-month Treasury bills in March worth P300 billion, as well as the P540 billion it lent to the government in October.

The BSP last month also approved another cash advance worth P540 billion for the government.

ANZ Research said the central bank is likewise expected to buy securities from the secondary market again in the coming months in a repeat of its bond buying program last year that helped manage liquidity conditions. — B.M. Laforga