Gov’t raises PHP 107 billion from FXTNs

The Government on Wednesday raised an initial PHP 107.072 billion from its second offering of new fixed-rate Treasury notes (FXTNs) that target institutional investors. 

The amount raised for the 10-year papers was more than three times the initial PHP 30-billion target as tenders reached PHP 328.467 billion.

The new Treasury bonds (T-bonds) fetched a coupon rate of 5.925%, producing an average rate of 5.893%, results of the rate-setting auction posted on the Treasury’s website showed.

Accepted bid yields ranged from 5.75% to 5.928%.

The coupon rate was 5 basis points (bps) above the 5.875% seen for the same bond series but 0.9 bp lower than the 5.934% seen for the 10-year notes based on PHP Bloomberg Valuation Service Reference Rates data as of Feb. 18 published on the Philippine Dealing System’s website before the auction. 

The public offer period as well as the exchange offer for the holders of bonds maturing over the next year will end on Feb. 20. The notes are scheduled to be issued on Feb. 23.

In April last year, the government raised PHP 300 billion via new 10-year benchmark notes, well above the PHP 30-billion program. It had initially raised PHP 135 billion from the rate-setting auction.

National Treasurer Sharon P. Almanza told reporters after the auction that they are aiming to raise at least P200 billion from the issuance but noted the total will also depend on the demand from the exchange program. 

The FXTN offering includes an exchange program for holders of securities maturing on April 8, Sept. 7, Sept. 20, Oct. 20, and Jan. 4, 2027.

Ms. Almanza said the coupon rate fetched by the notes was a “fair rate” despite investors asking for a higher yield ahead of the central bank’s policy meeting on Thursday.

“The demand for the 5.95% was higher, the concentration of bids was there…. And the main thing is the expectation that rates will still go down,” she said.

“If we awarded at 5.95%, we don’t need an offer period, since that was PHP 200 billion already.”

All 16 analysts in a BusinessWorld poll conducted last week expect the Monetary Board to deliver a sixth straight 25-bp cut at its first meeting for the year on Thursday. If realized, this will bring the policy rate to 4.25%.

The Bangko Sentral ng Pilipinas has lowered benchmark borrowing costs by a cumulative 200 bps since its easing cycle began in August 2024.

Ms. Almanza said that the strong liquidity in the country’s financial system also drove demand for the offering following the maturity of a Treasury bond on Feb. 16.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said in a Viber message that the PHP 232.8 billion in liquidity injected into the financial system due to the maturity of seven-year bonds on Feb. 13 added to the demand for fresh notes.

The offering of fresh fixed-rate Treasury notes is part of the Bureau of the Treasury’s (BTr) consolidation of issuances, Ms. Almanza said.

“We don’t want to introduce new ISIN (International Securities Identification Number) [bonds] so that the yield curve is not fragmented. There are already too much active ISIN series [bonds], so we’re retiring [them] and then we’re only introducing one or two [FXTN],” she said.

For this year, she said they will only issue FXTN once.

The awarded coupon rate was at the lower end of market expectations, a trader likewise said in a text message.

“Average yield and coupon are lower due to the continuous downward trend of yields this past week or so. Demand was incredibly high, leading to higher likelihood that the BTr will surpass the PHP 200-billion target.”

Dollar bonds

Meanwhile, Ms. Almanza said the government could tap the offshore debt market in the second half of the year to raise the remaining USD 2.5 billion from the government’s external borrowing plan.

“We have a remaining USD 2.5 billion. So, we’re monitoring US dollars because that’s the cheapest. But timing wise, we did just issue (global bonds in January).”

In January, the government raised PHP 2.75 billion from a triple-tranche dollar-denominated bond offering of 5.5-, 10-, and 25-year notes.

Asked if the government could issue offshore bonds in the second half, Ms. Almanza said: “Most probably. We’re also monitoring yen and euro.”

The BTr is also working with the Privatization and Management Office to identify assets the government could finance that will fall into the Sukuk category for an Islamic issuance this year.

The BTr first issued Sukuk bonds in December 2023, raising USD 1 billion from the sale of 5.5-year Sukuk bonds.

Sukuk or Islamic bonds are certificates that represent a proportional undivided ownership right in tangible assets, or a pool of tangible assets. These assets could be in a specific project or investment activity that is Shari’ah-compliant.

The markup takes the place of interest, which is illegal in Islamic law. Murabaha is not an interest-bearing loan but is an acceptable form of credit sale under Islamic law. A Sukuk al-Murabaha certificate cannot be traded on the secondary market.

Unlike usual bonds, Sukuk bond issuances must adhere to Islamic principles and must be structured to prohibit elements such interest, uncertainty and investments in businesses that deal with prohibited goods or services.

The government aims to raise PHP 308 billion from the domestic market this month or PHP 108 billion via Treasury bills and up to PHP 200 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.647 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy, Reporter