Demand for domestic debt issuances likely to rise

The National Government’s (NG) domestic debt offerings could see higher demand in the coming months after the Bureau of the Treasury (BTr) said it is unlikely to make foreign or large bond issuances this year.

“The BTr’s signal to skip foreign or retail bond issuances for the rest of 2025 reflects comfortable cash buffers and likely confidence in meeting financing needs through regular domestic auctions. This could also be a strategy to reduce foreign exchange risk and avoid locking in foreign debt at potentially high global rates,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said in a Viber message.

“For the secondary market, this supply restraint could lead to stronger demand and firmer pricing for existing government securities, especially in the medium to long end of the curve,” he said.

Last week, National Treasurer Sharon P. Almanza said that the government is unlikely to issue another global bond this year as it has almost completed its program for foreign borrowings.

The government is also not looking at any more large offerings like a Sukuk or a retail Treasury bond issuance, she said, adding that the BTr will add benchmark fixed-rate Treasury notes (FXTN) to its issue lineup.

The BTr last month raised P300 billion from its offering of new 10-year FXTN, 10 times the initial P30-billion program. It borrowed an initial P135 billion via the papers at the rate-setting auction and held a public offer.

The notes fetched a coupon rate of 6.375%. Accepted bid yields ranged from 6% to 6.4%, resulting in an average rate of 6.286%.

The FXTN offer was held under a new issuance format meant to establish a new benchmark bond and targeting institutional investors like corporates, cooperatives, trust funds, retirement funds, and provident funds.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the FXTN issue format would give the BTr “more wholesale funding sources with bigger amounts and rates.”

This would help diversify and better hedge the government’s borrowing requirements, he added.

“Borrowing more from domestic sources amid lower rates and the benefit of being shielded from foreign exchange risk may be a good strategy to better manage the country’s debt,” Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc., said in a Viber message.

In January, the government raised $3.29 billion from its sale of US dollar and euro bonds, its first global bond offer for the year.

The NG’s commercial borrowing program is pegged at $3.5 billion this year.

This year’s overall financing program is set at PHP 2.55 trillion, of which about 20% or PHP 507.408 billion will come from foreign sources and about 80% or PHP 2.04 trillion will come from domestic sources.

The government borrows from local and external sources to help fund its budget deficit, which is capped at P1.54 trillion or 5.3% of gross domestic product this year.

Lower rates

Meanwhile, domestic bond yields may continue to go down this year with the Bangko Sentral ng Pilipinas (BSP) expected to cut rates further, Mr. Ricafort said.

This would help bring down the government’s borrowing costs, he added.

“Yields may soften slightly, especially with the BSP adopting a more dovish tone and first-quarter gross domestic product (GDP) growth coming below target, both pointing to potential rate cuts in the second half of the year,” Mr. Rivera likewise said.

Analysts have said that benign inflation and weak GDP growth in the first quarter give the Philippine central bank ample room to cut benchmark rates further.

Headline inflation sharply slowed to 1.4% in April from 1.8% in March and 3.8% a year prior. This brought average inflation in the first four months to 2%, at the low end of the BSP’s 2-4% annual target.

Meanwhile, the Philippine economy expanded by 5.4% in the first quarter, a tad faster than the revised 5.3% in the previous quarter but sharply slower from the 5.9% growth in the same period in 2024.

This was also well below the government’s 6-8% GDP growth target for the year.

BSP Governor Eli M. Remolona, Jr. told Bloomberg last week before the GDP report that they are open to cutting rates by a further 75 basis points (bps) this year amid cooling inflation.

Last month, the Monetary Board resumed its easing cycle after an unexpected pause in February, cutting benchmark rates by 25 bps to bring the policy rate to 5.5%. Its next meeting is on June 19. — Aaron Michael C. Sy