Gov’t eyes RTB sale in Q4; debt swap also expected

The government plans to issue a fresh batch of retail treasury bonds (RTBs) and debt swap, which are expected to temporarily push up interest rates in the next few months.

First Metro Investment Corp. and the University of Asia and the Pacific said in their jointly issued monthly research note that such plans would prompt an increase in the cost of money, especially for longer maturities.

“The specter of RTB issuance to be combined with a bond swap (to longer tenors) would create a temporary upward movement especially at the long end of the curve, since there may be oversupply at that end,” the study said.

Earlier, Deputy Treasurer Eduardo S. Mendiola said the Bureau of the Treasury has tentative plans for a fresh issue of RTBs as well as a bond swap in October.

Mendiola said the BTr might do both in October, but this still depends on the advice of the arrangers, adding that the plan is for a debt swap to be done within the fourth quarter.

He also said the BTr was looking at issuing P60 billion to P70 billion worth of 25-year RTBs. As for the debt swap, this may involve maturities of seven, 10, 15, 20 and 25 years.

But despite the possible temporary rise interest rates, the Market Call research note said the longer-run scenario describes a “slightly downward bias” on yield because the demand for government securities will remain robust.

The paper said appetite for government offers will take the cue from inflation remaining close to the lower end of the central bank’s target rate 3 percent to 5 percent, as well as increased liquidity following the recent policy rate cut and the possibility of another within the year.

For the third time this year, the Monetary Board in July shaved off 25 basis points on its policy rates to bring the overnight borrowing rate to 3.75 percent and the overnight lending rate to 5.75 percent.

“The pressure from external sources should remain muted on account of the uncertainties in the euro zone, and a possible [third round of US Fed quantitative easing] has been highlighted for the US, considering the weak economic numbers spewed out in July,” Market Call said.

“Similarly, there should be more demand locally for shorter-term papers and so we expect some softness in yields there,” it added.

As for corporate bonds, Market Call expects long-term offers that were being worked out in the first semester to finally reach the market by the second semester considering that interest rates will still be low and attractive for issuers.