Gov’t to sell inflation-linked bonds worth at least P700M

After raising P150 billion from the recent sale of retail treasury bonds (RTBs), the government is now preparing for the issuance of inflation-linked bonds within the year.

National Treasurer Rosalia de Leon said the Bureau of the Treasury was finalizing talks with the Bureau of Internal Revenue on the tax structure that would be used for the inflation-linked bonds, which the Philippine government would be selling for the first time.

De Leon said the BTr intended to offer at least P700 million worth of these bonds in the domestic capital market.

“We are looking at issuing at least P700 million in order to have sufficient liquidity,” De Leon said. There should be significant volume of a certain security for it to be actively traded in the secondary market.

De Leon said the bonds would likely have maturity of seven and 10 years.

The target buyers of the bonds are long-term investors, including insurance companies, she said.

Unlike other bonds, inflation-linked bonds give investors the benefit of keeping yields from being eroded by increases in consumer prices, with its interest pegged to inflation.

De Leon said the government found it prudent to sell inflation-linked bonds given projections that the increase in prices would remain subdued over the next several years.

She said the Bangko Sentral ng Pilipinas had so far managed to keep inflation moderate and well within the targets over the past few years. The BSP has established a good record in managing liquidity and prices , the national treasurer added.

Last year, inflation averaged 3.2 percent, which was close to the lower end of the official target of 3 to 5 percent.

In the first seven months of this year, inflation averaged 2.9 percent.

The benign inflation environment, despite the robust growth of the economy, is credited to favorable farm production and rising local investments. It is also attributed to the subdued global demand, which tempers the increase in the prices of imported goods.

For this year, the Philippine government is concentrating on raising funds from the domestic market. It decided to temporarily forego selling securities in the international market as a liquidity and foreign exchange management strategy.

Officials wanted to temper the rise in the inflow of dollars, which was exacerbated by foreign borrowings, to avoid a steep rise in the value of the peso.