Government weighing peso debt swap in Nov.THE GOVERNMENT is eyeing a peso bond swap next month, as it seeks to establish benchmarks for long-term securities expected to fund public-private partnership (PPP) projects next year.
"In a month, or so," Finance Secretary Cesar V. Purisima told reporters when asked about the timing of the local bond swap.
"We want the 20-year and 25-year more liquid," he added, when asked what maturities the government was looking at.
Deputy National Treasurer Eduardo S. Mendiola told reporters after the Treasury bill auction yesterday that invitations for banks to participate in the swap will be sent out "within the month."
"We will start with the [sending of] invitations [to banks] within this month. I am sure it’s within this month," Mr. Mendiola said.
Under the planned swap, Mr. Purisima said holders of five- and 10-year securities will be asked to exchange these for either "20-year or 25-year bonds."
The government will not only extend the maturity of its debts, but will also create liquid long-term papers.
"Once these (long-term securities) are more liquid, people will be more willing to buy the bonds," Mr. Purisima explained.
Moreover, these bonds will also provide "basis for corporations to issue such long loans."
Less than 10% of government bonds outstanding have maturities of more than 10 years, noted the Asian Development Bank in the latest issue of the Asia Bond Monitor.
Liquid, long-term papers are crucial to funding infrastructure projects under the PPP scheme.
The Finance department has said it is looking into the possibility of issuing zero coupon or discount bonds -- which do not pay interest but are redeemed at full face value upon maturity -- through a new entity to finance about 80 projects worth P740 billion lined up under the PPP scheme.
The government will hold a convention next month to present projects to investors.
At least 10 projects worth P127.8 billion under the PPP umbrella are slated to begin next year, while a "longer list" of 71 ventures, including power projects, worth around P612 billion is being finalized for 2012 and beyond.
In a separate interview, National Treasurer Roberto B. Tan said more issuances of 25-year T-bonds are required to set a benchmark.
"We want to deepen it more so that trading and issuance of [long-term bonds in the future] will be more efficient," Mr. Tan said.
He said the government will adjust its bond issuances based on market feedback, which will vary, "depending on investors’ investment objectives."
The last time the Treasury auctioned 25-year bonds was on Sept. 28, when it sold P8.5 billion worth of the papers for 8%. The previous auction was in November last year.
An auction of 25-year papers has been scheduled on Nov. 25.
The Philippines, Asia’s largest sovereign debt issuer, last held a local bond swap in January 2009, when it issued P144.5 billion worth of five-year and seven-year bonds.
Narrow window for tariff perk
50-50 chance seen for US measure favoring RP-made garments
PHILIPPINE GARMENT EXPORTERS will have to wait in suspense as a proposal to have Washington slash tariffs on their shipments has just a 50% chance of being passed despite another round of lobbying last week, a Trade official yesterday said.
US legislators told the Philippine delegation that schedules were tight with the current Congress slated to bow out by early January, Trade Undersecretary Cristino L. Panlilio said on his return from the trip.
"We were able to meet 11 senators and House representatives and nine chiefs of staff. The feedback I got was they are very much in favor of the bill. But I would say there’s a 50-50 chance for its passage," Mr. Panlilio said in a telephone interview, referring to the proposed "Save Our Industries Act of 2009."
The measure seeks duty-free privileges for Philippine-made garments that use American textiles and yarns and also lower tariffs on other apparel shipments.
Preferential duties are needed as the tariffs on garments are among the US’ highest, according to the World Trade Organization (WTO).
The proposed measure has yet to be taken up by the House ways and means committee and Senate finance committee where versions of the bill were filed.
The Confederation of Garment Exporters of the Philippines (CONGEP) is banking on the measure to boost industry sales, which have been stagnating since 2005 when US export quotas were removed in compliance with WTO rules. Garment export sales have remained at roughly $2-2.5 billion per year since the quotas expired. CONGEP has estimated the measure will add $1.1 billion to annual sales during the first year of its implementation and $480 million worth of investments for garment factories in the first two years.
"It’s a bill worth dying for," Mr. Panlilio said.
"[The congressmen we spoke with] are all very much in favor of trying to see if they can endorse it into the legislative agenda for November to December but it will be a tight schedule," he said.
The US Congress is in recess until Nov. 15 to make way for the elections. Its term ends in early January, Mr. Panlilio said.
U.S. Stocks Retreat on Microsoft, Alcoa Ratings Cuts, Economy
U.S. stocks fell, sending the Dow Jones Industrial Average to its biggest drop in almost a month, as analyst rating cuts of companies including Microsoft Corp. and Macy’s Inc. triggered caution before the start of the earnings season.
Microsoft slumped 1.9 percent after Goldman Sachs Group Inc. removed its “buy” rating on the shares, citing the company’s struggle to gain market share in mobile devices, while Macy’s fell 1.7 percent after Goldman lowered the department- store chain to “neutral.” Alcoa Inc., the aluminum company that will unofficially start the earnings season on Oct. 7, lost 2.5 percent as Deutsche Bank AG advised selling the shares.
The Standard & Poor’s 500 Index slipped 0.8 percent to 1,137.03 at the 4 p.m. close in New York. The Dow declined 78.41 points, or 0.7 percent, to 10,751.27 for its biggest retreat since Sept. 7.
Treasuries Advance Amid Factory-Order Decline, Outlook for Fed Purchases
Treasuries rose, pushing two-year yields to a record low, as government data showing U.S. factory orders declined more than forecast fueled speculation the Federal Reserve will increase asset purchases.
Three-year note yields reached the lowest level since 1962 before an employment report on Oct. 8 that’s forecast to show no change in overall payrolls last month. Fed Chairman Ben S. Bernanke said the central bank’s first round of large-scale asset purchases improved the economy and that further buying is likely to help more.
“The Fed will go through with some type of quantitative easing,” said James Combias, New York-based head of Treasury trading at Mizuho Financial Group Inc., one of 18 primary dealers that trade Treasuries with the central bank. “A lot of it is priced into the market, so if things don’t pan out that way, the market may be a bit vulnerable. If the employment number is stronger than anticipated, it could knock the market back.”
The two-year yield fell to a record 0.3987 percent before trading at 0.4066 percent, according to Bloomberg generic data. The three-yearyield touched 0.5892 percent.
Ten-year note yields fell 4 basis points, or 0.04 percentage point, to 2.48 percent at 4:59 p.m. in New York, according to BGCantor Market Data. The 2.625 percent security due in August 2020 rose 10/32, or $3.13 per $1,000 face amount, to 101 9/32. The yield on the 30-year bond fell less than 1 basis point to 3.71 percent.
Oil Trades Near Eight-Week High After U.S. Stocks Fall, Goods Orders Gain
Oil traded near an eight-week high in New York after equities slipped and orders for U.S. capital goods increased the most since March.
Futures retreated yesterday after stocks declined for the third time in four days and the dollar advanced against the euro. The Commerce Department reported that orders for non-military capital goods excluding planes climbed 5.1 percent. An Energy Department report tomorrow will probably show crude supplies rose last week, according to a Bloomberg News survey.
“It’s hard to justify a further move higher with stocks down and the dollar stronger,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We’ll see if we can consolidate here and keep an eye on this week’s economic reports.”
The November contract traded at $81.39 a barrel, down 8 cents, in electronic trading on the New York Mercantile Exchange at 9:45 a.m. Sydney time. Yesterday it lost 11 cents to $81.47. Oil closed at $81.58 on Oct. 1, the highest level since Aug. 5. Prices are up 2.5 percent this year.
The Standard & Poor’s 500 Index dropped 0.8 percent to 1,137.03 at the 4 p.m. close in New York, and the Dow Jones Industrial Average shed 0.7 percent to 10,751.27.
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
Jonathan Ravelas
Chief Market Strategist
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Rhys Cruz
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