Bond swap boosts hope for market

Business Mirror
January 20, 2006
http://www.businessmirror.com.ph/2006/0120/20%20frontpage%20bond.php

Bond swap boosts hope for market

By Jun Vallecera
Reporter

HOPES are high the domestic bond market would finally get the investor attention it deserves with the upcoming swap of outstanding peso bonds for new ones starting next month.

Simon Paterno, whose employer, the financial services giant Credit Suisse First Boston, has been appointed financial arranger of the transaction, said the bond swap is seen to enliven the local debt market that in the past was often ignored in favor of more lucrative markets in the region.

"We were generally bypassed owing to the very wide bid and offer spreads on our peso bonds," Paterno said.

The term refers to the price at which a prospective buyer is willing to pay for a given security, which are
three- to seven-year government bonds in this case.

They are used by so-called market makers who stand by, ready to buy or sell round lots of IOUs at publicly

quoted prices.

Because of the relative immaturity of Manila 's debt market, bid and offer rates on peso bonds are generally wide, discouraging any meaningful investor participation, Paterno explained.

That immaturity is costing the Philippine economy lots of lost opportunities in terms of accessing long-term money necessary for key infrastructure like deep water ports, first-class airports, high-speed roadways and the like.

But with the bond swap, National Treasurer Omar Cruz said the myriad of sovereign bonds out there would be reduced to just three.

While the solidified bond market does not translate to lower interest cost to government overall, the simplified state is seen to create "efficiency in the market that will bring about lower costs over time," Cruz asserted.

"The simplified state will make us very liquid," the former Citibank executive added.

It was also hoped the simplified market will encourage the reluctant bond investor to invest in longer-dated government securities.

And because the debt market will henceforth be more transparent, those who turn around and sell "will no longer be creamed by the lack of bond buyers."

"Investors will no longer have to deal with the same broker and get creamed all the time because the market will always be there," Cruz said. Bond market players were initially ecstatic about the bond swap, which will be conducted through the auction of eligible IOUs on February 10 and again on the 24th of the same month.

"Bond investors can sell at better spreads and with greater ease with the facility," Cruz said.