By Karl Angelo N. Vidal, June 27 2019; Business World

Image Credit to Business World

THE GOVERNMENT plans to borrow P230 billion from the domestic market next quarter through a mix of short and long-term securities, smaller than the amount offered in April-June and in last year’s third quarter.

In a memorandum posted on its Web site on Wednesday, the Bureau of the Treasury said it will auction off P90 billion in Treasury bills (T-bill) and P140 billion worth of Treasury bonds (T-bonds) between July and September.

The planned borrowing next quarter is smaller than the P315 billion planned in April-June as well as the P300 billion placed on the auction block in last year’s third quarter.

Broken down, the Treasury plans to raise P15 billion per offer through T-bills — P4 billion worth of the 91-day tenor, P5 billion in 182-day debt and P6 billion in 364-day bills — which will be sold in six fortnightly auctions between July and September.

The government will also sell T-bonds next quarter worth P20 billion per auction. The BTr will issue three-year bonds on July 4 and Aug. 29, seven-year debt papers on July 18 and Sept. 12, 10-year notes on Aug. 15, while 20-year papers on Aug. 1 and Sept. 26.

National Treasurer Rosalia V. De Leon said last June 10 the Treasury’s programmed borrowing next quarter will be smaller than the April-June program due to the “slow” government spending earlier this year amid a four-month delay in enactment of the P3.662-trillion national budget. “Since spending was a bit weaker during the first two quarters — but at the same time we’ve been able to maintain our borrowing given the auction performance and also the collections are pretty good — we have more than enough cash to be able to finance the sustained higher spending for the next quarter or so,” she had told reporters then following an auction.

Latest official fiscal data showed the country’s fiscal deficit at P809 million as of May, 99.4% less than the P138.7-billion gap posted in 2018’s first five months, as revenues grew 10.7% to P1.314 trillion from P1.186 trillion, while the government spent 0.8% less at P1.315 trillion from P1.325 trillion.

This quarter, the Treasury raised P256.448 billion from the domestic market out the programmed P315 billion, broken down into P176.448 billion in T-bills and P80 billion in T-bonds.

The government returned to offshore market twice last month, raising €750 million ($842.33 million) in eight-year global bonds with a 0.875% coupon, as well as 2.5 billion renminbi ($363.3 million) in three-year “panda” bonds priced at a coupon of 3.58%.

Robert Dan J. Roces, chief economist of Security Bank Corp., said the Treasury was compelled to trim its offering for the third quarter as it expects borrowing costs to continue easing “after the BSP (Bangko Sentral ng Pilipinas) kept policy rates unchanged last week and adopted a ‘prudent pause’ to await further confirmation from data that inflation would indeed head lower; forecasts from the central bank have already been downgraded.”

He added that the central bank can be expected to resume easing benchmark interest rates in its Aug. 8 policy review, although the decision will likely hinge on second-quarter gross domestic product growth (GDP) data to be released hours before that BSP meeting.

“We expect Q2 GDP to be subdued as the ill-effects of the delayed budget passage — largely blamed for Q1’s tepid growth — appears to have permeated into the second quarter as the budget balance for May still posted a surplus of P2.6 (billion),” Mr. Roces explained.

Meanwhile, Robinsons Bank peso debt trader Kevin S. Palma said offered tenors are relatively attractive for investors given that interest rates can still be expected to dip. “We saw very strong demand for both Treasury bills and bonds in the second quarter and said market demand is expected to persist in the third quarter, more so with a trimmed offering,” Mr. Palma said in a Viber message.

The government is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of GDP. Of the amount, 75% will be sourced domestically while the balance will be from foreign creditors.

Plans for a yen-denominated “samurai” bond offer are currently being finalized.