RP bonds rise as higher ratings cut risk on debt

Business Mirror
Feb 16, 2006

RP bonds rise as higher ratings cut risk on debt

PHILIPPINE peso bonds on Wednesday rose for a 12th day on optimism the nation is less likely to default on its debt following an improvement in its credit-rating outlook.

Demand for local bonds climbed after Fitch Ratings this week changed the outlook on the government's $76 billion of debt to stable from negative. Fitch kept its BB rating, two levels below investment grade, on the government's long-term foreign-currency debt.

Standard & Poor's on February 9 also maintained its rating, which is one step lower than Fitch.

"It's recognition of the improving credit quality," said Dilip Parameswaran, Hong Kong-based head of Asian credit research at Calyon, the securities arm of Credit Agricole SA. "The market has to price that in when they trade bonds."

The yield on the seven-year bonds fell 5 basis points, or 0.05 percentage point, to 8.883 percent as of noon in Manila , according to the Money Market Association. The yield has fallen 58 basis points during the 12-day rally.

The price of the 9-percent bond due in January 2013 rose 0.2477, or P24.77 per P10,000 face value, to 100.5744. The price moves inversely to yield.

President Gloria Arroyo on February 1 increased the value-added-tax to 12 percent from 10 percent, after widening it to cover the sale of oil, power and other previously exempt products and services on November 1. The tax changes are expected to generate an extra P75 billion (US$1.46 billion) in revenue this year.

Mrs. Arroyo plans to narrow the deficit to P125 billion in 2006, the lowest in seven years. The budget gap fell 22 percent to P146.5 billion in 2005 from the previous year's P187 billion. Last year's deficit was also below the government's P180-billion estimate.

A stable outlook on the country's debt means Fitch and S&P are less likely to cut the nation's junk debt ratings. That will help Mrs. Arroyo reduce borrowing costs on her government's plan to sell $900-million more of bonds overseas this year. The nation sold $2.1 billion of debt abroad in January to help fund the budget shortfall. Bloomberg

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