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Sancho Panza

Philippines Offers Dollar Debt As Sovereigns Sell Most On Record

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Bloomberg 9/1/14

'The Philippines is marketing a sale of U.S. dollar-denominated bonds, adding to the busiest week for Asian sovereigns on record as slowing U.S. stimulus threatens to increase funding costs. The nation, Southeast Asia’s fastest growing economy, plans to sell 10-year bonds at a yield of about 4.5 percent, according to a person familiar with the matter, who asked not to be identified because the terms aren’t set. Indonesia and Sri Lanka sold $5 billion of notes in the U.S. currency this week, the most in Bloomberg-compiled data going back to 1999.

Asian sovereigns are looking to borrow after the Federal Reserve announced it would taper record stimulus, increasing the yield on benchmark U.S. government debt. Interest rates on 10-year Treasuries have risen 1.36 percentage points since May, when the central bank indicated it was considering trimming bond purchases. The average cost of dollar funds for the region’s sovereigns rose as high as 5.83 percent in September, up from an average 4 percent in 2012, JPMorgan Chase & Co. indexes show. Borrowers now pay 5.17 percent.

“Philippine authorities are trying to lock in current yields,” said Desmond Soon, a Singapore-based fund manager at Western Asset Management Co., which oversees $442.7 billion globally. “There is expectation U.S. Treasury yields will go higher over the course of the year.”

Federal Reserve officials saw diminishing economic benefits from their bond-buying program, according to minutes from the Federal Open Market Committee’s Dec. 17-18 meeting, where policy makers decided to cut monthly note purchases to $75 billion from $85 billion. The committee meets again Jan. 28-29.

Bond Buyback

The Philippines, which won investment-grade ratings from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings Ltd. for the first time in 2013, last sold dollar debt in January 2012, Bloomberg-compiled data show. The country shunned the market last year after the peso became the second-best performing currency in Asia in 2012. The currency weakened 7.6 percent in 2013.

The country will use proceeds from its latest sale to buy back foreign-currency bonds and for budgetary support, among other general purposes. It bought back $1.2 billion of its foreign-currency bonds in November 2012 for almost $1.5 billion to cut annual interest costs. In 2011, the Philippines spent $1.7 billion buying back global notes.

Sales Increase

Foreign-currency borrowing by sovereigns should increase in the next few years, according to Avanti Save, a Singapore-based credit strategist at Barclays Plc. “An increase in issuance partly stems from the need to finance upcoming maturities and large fiscal financing needs, but the inclination to avoid supply pressures in local markets also plays a part.”

Issuers sold 136 billion pesos ($3 billion) of bonds last year, data compiled by Bloomberg show. Borrowers from the Philippines pay an average 4.97 percent for debt in the U.S. currency, JPMorgan indexes show. The yield on the nation’s most recent dollar bonds, due 2037, slid 3 basis points to 4.77 percent as of 4:56 p.m. in Manila, according to Bloomberg prices.

Asian sovereign bonds lost 7.2 percent last year, the most since 2008, according to the indexes.

Indonesia sold $2 billion each of 10-year and 30-year bonds on Jan. 7, data compiled by Bloomberg show. The 10-year bonds priced to yield 5.95 percent, the data show. Sri Lanka meanwhile raised $1 billion from a sale of five-year notes a day earlier, the data show.

Bond Risk

The cost of insuring corporate and sovereign bonds in the Asia-Pacific region from non-payment increased today, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 1 basis point to 138.5 basis points as of 8:15 a.m. in Singapore, prices from Australia & New Zealand Banking Group Ltd. show. The benchmark is rising for a ninth consecutive day and is poised for its highest close since Nov. 13, according to data provider CMA.

The Markit iTraxx Japan also advanced 1 basis point to 74.3, Citigroup Inc. prices as of 8:45 a.m. in Tokyo show. The measure is rising for a fifth consecutive day and is on track to increase 7 basis points this week, an advance which would be the biggest such period gain since the five days ended Nov. 1, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index climbed 1 basis point to 100.5 basis points as of 10:03 a.m. in Sydney, National Australia Bank Ltd. prices show. The gauge, which is rising for a third day, is at levels near the highest in three weeks, CMA data show.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.'

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Who knows, any more $ QE and you'll start seeing the US borrow in gold denominated debt.

A trillion dollar prize to the first person who comes up with a good, dynamic multi-currency/asset denominated debt instrument.

China's probably keen.

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