By Karl Angelo N. Vidal, March 29 2019; Business World

Image Credit to Business World

THE GOVERNMENT plans to borrow P315 billion from the domestic market next quarter through a mix of short and long-term securities, lower than the amount offered in January-March and in last year’s second quarter.

In a memorandum posted on its Web site on Thursday, the Bureau of the Treasury said it will auction off P195 billion in Treasury bills (T-bill) and P120 billion worth of Treasury bonds (T-bond) between April and June.

The planned borrowing next quarter is lower than the P360 billion the government offered in January-March as well as the P325 billion placed on the auction block in last year’s second quarter.

Broken down, the Treasury plans to raise P15 billion per offer through T-bills — P4 billion in 91-day tenor, P5 billion in 182-day debt, and P6 billion in 364-day bills — which will be sold in five auctions in April and four each in May and June.

This quarter, the Treasury offered P20 billion worth of T-bills weekly, divided into P6 billion each for the three- and six-month debt papers and P8 billion for the one-year instruments.

The government will also issue a mix of T-bonds next quarter worth P20 billion per auction. The Treasury will offer 10- and 20-year papers on April 11 and 25, followed by seven- and 10-year notes on May 16 and 30, as well as 20- and seven-year instruments on June 13 and 27.

The state plans to borrow P1.189 trillion in 2019 to help fund its P3.757-trillion budget. Of the amount, 75% will be sourced domestically while the balance will be from foreign creditors.

The national government borrows from local and foreign sources to fund increased spending — especially on infrastructure and social services — and boost economic activity.

Sought for comment, a bond trader said the preference of the Treasury to offer debt papers with longer tenors “will help the yield curve since the issuance for the second quarter is on the long term… Clients would like to lock in the rates in the long end.”

Another trader said that the demand for longer tenors reflects expectations that inflation will be contained within the central bank’s 2-4% target range.

“Given that view, people would rather lock in rates for longer tenors than have a reinvestment risk when you invest on short-term placements,” the trader explained in a mobile phone message.

The Bangko Sentral ng Pilipinas, which sees inflation continue a softening seen since November last year from a nine-year-high 6.7% clocked in September and October, last week trimmed its full-year forecast average for 2019 to three percent from 3.1% previously.

“The inversion of the yield curve is turning out to be a global scenario. Global growth slowdown is triggering demand for safe-haven assets such as bonds,” the second trader added.

The budget deficit is projected to widen to an equivalent of up to 3.2% of gross domestic product in 2019, from a programmed three percent and actual 3.2% last year, to accommodate increased government spending particularly on infrastructure.