Philippines Macroeconomist/Strategist

Jun Trinidad

FX & Rates

Behind Treasury's expanded 2Q18 borrowing plan (Php325bn) biased to t-bills is the intention to keep borrowing costs down to prevent material erosion of primary expenditures given the 2018 deficit target of 3% of GDP.  Narrowing of primary expenditures could risk lowering the fiscal stimulus.  Government can expand its short-term debt sales to placate inflation fears amid policy rate uncertainty. The share of t-bills to total government debt remains low, which could soften upside pressures on the effective cost of government debt. Between elevated t-bill rates and t-bond yields, government may prefer the cost of incurring higher short-term rates. Government estimated an incremental Php1bn (vs Php2.6bn) budget deficit for a 1% rise in t-bill rates (vs t-bond yields). In a rising interest rate environment, these estimates support Treasury’s funding bias to prefer more t-bills in the near-term. The flipside of this is Treasury’s concern in managing its effective debt cost, which in turn could impact the fiscal stimulus.Treasury’s 2Q auction program clearly suggests short-duration instruments as core holdings in the near-term. With ongoing fiscal reforms and peaking inflation risk, one cannot dismiss oversold bonds particularly in the 5yr and 10yr segment of the curve.

Behind Treasury's expanded 2Q18 borrowing plan (Php325bn) biased to t-bills is the intention to keep borrowing costs down to prevent material erosion of primary expenditures given the 2018 deficit target of 3% of GDP.  Narrowing of primary expenditures could risk lowering the fiscal stimulus.  Government can expand its short-term debt sales to placate inflation fears amid policy rate uncertainty. The share of t-bills to total government debt remains low, which could soften upside pressures on the effective cost of government debt. Between elevated t-bill rates and t-bond yields, government may prefer the cost of incurring higher short-term rates. Government estimated an incremental Php1bn (vs Php2.6bn) budget deficit for a 1% rise in t-bill rates (vs t-bond yields). In a rising interest rate environment, these estimates support Treasury’s funding bias to prefer more t-bills in the near-term. The flipside of this is Treasury’s concern in managing its effective debt cost, which in turn could impact the fiscal stimulus.Treasury’s 2Q auction program clearly suggests short-duration instruments as core holdings in the near-term. With ongoing fiscal reforms and peaking inflation risk, one cannot dismiss oversold bonds particularly in the 5yr and 10yr segment of the curve.

Discerning Treasury's Bloated 2Q Funding Program

Philippines

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Discerning Treasury's Bloated 2Q Funding Program

Behind Treasury's expanded 2Q18 borrowing plan (Php325bn) biased to t-bills is the intention to keep borrowing costs down to prevent material...

Jun Trinidad