S&P move boosts expectations for investment grade credit rating

Expectations that the government would achieve investment-grade credit rating next year were bolstered by the decision of Standard and Poor’s Ratings Services last week to raise its outlook on the Philippines, according to Budget Secretary Florencio B. Abad.

In a statement, Abad said the upgrade in S&P’s outlook on the Philippines to “positive” from “stable” reinforced the Aquino administration’s achievements in governance reforms.

“(With this latest move,) we are even closer to making investment grade next year, affirming the country’s growing reputation as a prime investment destination,” he said.

“We expect this upgrade to further reduce our risk profile and bring down the cost of borrowing, as well as lower the cost of doing business in the country,” he added.

The budget chief said that these improvements, in turn, would encourage investments that would help create more jobs.

Last week, Finance Secretary Cesar V. Purisima hailed S&P for “recognizing the continued improvement of the country’s fundamentals.”

With this action, Purisima said the country was now only half a step away from formally gaining investment grade, which “the market has already given us by rating the Philippines at least two notches above investment grade.” Purisima said.

Also last week, First Metro Investment Corp. and University of Asia and the Pacific said interest rates on domestic government securities were expected to keep decreasing while those on bonds issued abroad might have already  bottomed out.

In the December issue of Market Call, FMIC and UA&P said these trends will prevail through the succeeding months because of strong inflows from overseas.

“Despite little boost from the (central bank) on money growth, domestic liquidity as a result of (overseas Filipinos’) remittances and portfolio capital inflows would point to lower yields for December and beyond,” they said.

They said treasury bills and bonds “will continue to have a slight downward bias,” particularly as the recent issuance of retail T-bonds (RTBs) at a record volume of P188 billion had eased the government’s need to borrow.

“With even better economic growth prospects and a likely credit rate upgrade in 2013, the (government securities) secondary bond markets will be even more active than it has been in 2012,” FMIC and UA&P said.

However, the research noted that the yields on Philippine bonds that would be issued overseas might no longer decline further.

Philippine global bond yields “have eased somewhat, but these are already very low that a further downside movement is no longer likely,” they said.

“It would appear that market players have already priced in the credit rating upgrade that is widely expected to occur in 2013,” FMIC and UA&P added.