Philippines to Sell Retail Treasury Bonds at ₱30B

The Philippines is again selling retail treasury bonds to help boost the economy and support COVID-19 response.
The Treasury is set to sell retail treasury bonds.

The pandemic’s devastating effect continues to wreak havoc all over the world. The death toll keeps increasing, while economies suffer at the same time. To save the dwindling economy, the Philippines is again selling retail treasury bonds. RTB sales proceeds were generally incorporated into the budget to augment the COVID-19 response.

Retail Treasury Bonds for Sale

The Philippine Bureau of the Treasury (BTr) offers retail treasury bonds (RTB) at ₱30 billion minimum principal amount. It will be in the peso denomination for five-and-a-half years. Additionally, there will be a
swap offer for bonds to fall due next year.

Retail treasury bonds are typically considered low-risk investment instruments. It enables investors to secure a fixed interest according to existing market rates, usually paid quarterly during the bond’s term.

On November 16, the Bureau of the Treasury will formally launch the bond offer. It will follow the local government’s initial onshore retail dollar bond issue. In September, it raised $1.6 billion, which helped fund government programs to boost its declining economy. The issuance of the papers will start on December 2 and will mature by 2027.

They will have to postpone the five-year and seven-year Treasury bonds’ auction on Nov. 16 and 23. It’s because they need to approve the upcoming retail treasury bond offering.

To date, it is the second retail treasury bond offering for 2021 after the three-year RTBs sold in February. The offering raised ₱463.3 billion, which was the largest-second RTB sale. It followed last year’s record of ₱516.3 billion for a five-year bond.

The Treasury intended these bonds to small investors.  These venture capitalists prefer low-risk and higher-yielding savings instruments supported by local government. Minimum investments begin at ₱5,000 and in duplicates of ₱5,000 accordingly.

Small investors can purchase RTBs from the Treasury’s online ordering facility. Or, they can buy it from Bonds.PH app as well as the all-digital Overseas Filipino Bank (OFBank).

On November 12, yields on the five and seven-year Treasury bonds escalated to 24.34 and 12.89 basis points. It’s a week-on-week high-rise of 4.1571% and 4.6372%. This is according to PHP Bloomberg Valuation Service Reference Rates.

Borrowing Money and Auctioning Bonds

For this year, the government plans to borrow from local and external sources a total amount of ₱3 trillion. It aims to fill up a budget deficit cited to hit 9.3% of the nation’s gross domestic product (GDP).

This month, The Treasury plans to borrow from the local debt market around ₱200 billion. It’s the same amount it considered to borrow for last month. It targets to gather ₱140 billion through T-bonds auction. Additionally, it plans to borrow ₱60 billion through T-bills.

Growing Debt-to-Gross Domestic Product Ratio

According to the Bureau of the Treasury, as of end-September 2021, the country’s debt-to-gross domestic product ratio increased to 63.1%. It grew as the national government’s current debt hit ₱11.917 trillion during the period. For the past 16 years, it’s the country’s highest debt-to-GDP ratio when the IOU debt as economy percentage hit 65.7% in 2005.

“The rising trend in the country’s debt-to-GDP ratio to a 16-year high of 63.1% as of September 2021, from 54.5% as of end-2020 and from a low of 39.6% as of end-2019 (pre-pandemic) may have been largely brought about and accelerated by the COVID-19 pandemic/lockdowns in recent months,” said Michael Ricafort, Rizal Commercial Banking Corp. chief economist.

Ricafort added that the Philippines’ budget deficit could contract once the economy reopened further from latter lockdowns. It includes further reopening while embracing smaller scale lockdowns with the Alert Level System, which started on September 16.