The Philippine government continues to enjoy the confidence of investors in the bond market as its offerings of sovereign debt instruments in November were oversubscribed, latest data from the Bureau of Treasury (BTr) showed.
The government raising funds from the bond market is part of its strategy to diversify its sources of loans and lessen dependence on borrowings from foreign financial institutions.
On November 30, the BTr successfully raised $1 billion (P55 billion) from the sale of its maiden Sukuk bonds or Islamic bonds.
"The maiden issue was met with strong demand, with the order book’s oversubscription peaking at 4.90 [times]," the BTr said in a statement.
"The transaction attracted strong interest, not only from a wide range of high-quality Islamic investors but from others as well, showcasing investors’ confidence in the Republic’s credit profile," it added.
The Sukuk bonds, with an issuance size of $1 billion, a tenor of 5.5 years, and an interest rate of 5.045 percent, marks the first time the Philippines tapped the global Islamic financial markets.
The BTr said the maiden Sukuk bond issuance is part of the government's agenda to promote the development of Islamic banking and finance in the country.
The Sukuk bond issuance comes after the Investor Roundtable in Doha and the Philippine Economic Briefing in Dubai in September 2023, supplemented by a successful roadshow on November 27 and 28.
Finance Secretary Benjamin Diokno said the success of the inaugural Sukuk bond issuance affirms the Philippines' significant standing in the international capital markets and underscores investors’ conviction in the country's financial inclusion agenda.
"We hope this transaction will create positive momentum for Islamic banking and finance in the Philippines, and we look forward to the active participation of all stakeholders," he said.
The net proceeds of the certificates received will complete the country's external commercial funding this year which will be used for general purposes, including but not limited, to budgetary support.
First Tokenized bonds
On November 7, the BTr issued the first Tokenized Treasury Bonds (TTBs) that was oversubscribed by more than three times, pushing the bureau to upsize the digital token debt offering.
The BTr increased the TTBs to P15 billion from its initial offer of P10 billion, as tenders reached P31.426 billion.
Yield for the blockchain technology-enabled debt offering is at 6.5 percent, which is aligned with the one-year secondary market rates despite TTBs being non-tradable.
“The TTBs, whose settlement is scheduled for November 22, 2023, will be issued in the form of digital tokens to be maintained in the BTr’s Distributed Ledger Technology (DLT) Registry,” it said.
The BTr has rolled out a dual registry structure for the program with DLT Registry and the National Registry of Scripless Securities (NRoSS) running in parallel. The latter serves as the primary registry.
The BTr issues its maiden TTBs to allow broader participation in the bond market, as well as to promote greater financial inclusion and modernization of financial platforms.
“The bond tokenization program is anchored on the national government’s long-term vision of a financially inclusive domestic capital market. Through streamlining settlement procedures and minimizing friction costs, this initiative is a huge leap towards our end goal of democratizing investment and empowering our small investors,” Diokno said.
The maiden TTBs have a minimum denomination of P10 million and in increments of P1 million thereafter, similar to a conventional government securities offer, the BTr said.
Sought for comment, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said that since the TTBs are a new issuance, there could be some market excitement that would lead to higher bids.
"Market conditions locally and worldwide already improved since the start of November 2023, in terms of lower US sovereign bond yields amid easing inflation trend towards central bank targets and pause in Fed(eral Reserve) and local policy rates for now, and would even lead to a possible cut in Fed rates in 2024 that could be matched locally," he said.
"Thus, both bond issuers and investors are in a sweet spot in terms of lower borrowing costs, while investors would still enjoy relatively higher bond yields that already reached a near-term peak or inflection point in October 2023, so [this is] a win-win for both borrowers and investors," he added.
Reissued bonds also oversubcribed
The BTr also fully awarded the re-issued 10-year Treasury bonds at an auction on November 29.
With a remaining term of nine years and nine months, the re-issued bonds fetched an average rate of 6.781 percent. Total tenders reached P65.9 billion.
The BTr raised the full program of P30 billion, bringing the total outstanding volume for the series to P120 billion.
"The 10-year Treasury bond average auction yield eased to 6.781 percent versus the 6.954 percent in the previous 10-year T-bond auction on Oct. 24, 2024," Ricafort said.
Ricafort said, however, that the average auction yield was slightly higher than the Bloomberg Valuation Service yield at 6.74 percent as of November 13.
According to Ricafort, positive factors include the recent decline in the comparable 10-year US Treasury yield benchmark to 4.63 percent from the 5.02 percent posted on October 23, and the lower global crude oil prices, which is at $78 per barrel.
"Thus, all these factors, including the stronger peso exchange rate recently, could support the view of a possible pause in local policy rates on Thursday, November 16, 2023, matching the latest Fed rates pause on November 1, 2023 and could at least reduce the need for another local policy rate hike after the off-cycle 0.25 (basis points) local policy rate hike on October 26, 2023," Ricafort said.
The Bureau of the Treasury (BTr) also fully awarded the re-issued 20-year Treasury bonds (T-bonds) on November 14. With a remaining term of 15 years and two months, the re-issued bond fetched an average rate of 6.593 percent.
The BTr raised the full program of P20 billion, bringing the total outstanding volume for the series to P103.8 billion.
The auction was 3.6 times oversubscribed with total tenders reaching P71.3 billion.
Ricafort said the average auction yield is lower than the comparable 15-year PHP Bloomberg Valuation (BVAL) Service yield at 6.78 percent as of November 20, 2023.
The BTr also fully awarded the reissued seven-year Treasury bonds (T-bonds) on November 7. With a remaining term of six years and eight months, the reissued bond fetched an average rate of 6.807 percent.
The auction was two times oversubscribed with total tenders reaching P60.9 billion.
The BTr raised the full program of P30 billion, bringing the total outstanding volume for the series to P94.7 billion.
