The Philippines is reconsidering a plan to sell five-year jumbo bonds later this month, as a falling peso and rising interest rates make borrowing more expensive.

"We are reassessing the plan to ensure that our borrowing strategy remains responsive to evolving market conditions," National Treasurer Sharon P. Almanza said on Thursday in reply to Bloomberg News queries. She said the government did not anticipate that the Middle East situation would deteriorate further when the borrowing plan was prepared in June, adding that a decision on this month's bond sale would be announced "soon."

Jumbo bonds, also known as fixed-rate Treasury notes sold to institutional investors, typically raise a significant portion of the government's funding requirements, similar to retail bonds that are offered to individual investors. The Philippines has leaned on such large offerings in recent years as it funds widening fiscal deficits and post-pandemic spending needs.

The five-year Treasury notes planned for auction on Sept. 22 form part of this month's P380-billion ($6.1-billion) debt offerings. The most recent jumbo bond sale, held in February, raised P235 billion.

Investors are cautious as the central bank, Bangko Sentral ng Pilipinas, may continue raising interest rates to curb inflation, which remains elevated, said Helen Oleta, president of the Fund Managers Association of the Philippines in Manila. "Investors are waiting for better entry points and may be looking to reposition for next year," Ms. Oleta also said. The central bank has been in a tightening cycle since last year as it works to bring inflation back within its 2%-4% target band, and further hikes would push up yields on new government debt.

The escalation of the Middle East conflict has driven oil prices higher anew, pushing the Philippine peso to a new record low this week and in turn raising concerns about a surge in inflation. The Philippines is a net oil importer, making its economy particularly sensitive to swings in global crude prices. Price increases eased for three consecutive months to reach 6.2% in July, still more than twice the target for the year.

For foreign investors, high inflation and a weak local currency erode bond returns when converted back into their home currency, discouraging purchases. Scrapping the jumbo bond sale would hamper the government's efforts to boost large-scale offerings and bolster liquidity. Proceeding with the plan, however, would entail higher interest expense at a time when efforts to rein in the budget deficit are already challenging.

The government needs more funds to ramp up spending to spur economic growth and must also refinance bonds falling due this year. Over P100 billion of retail Treasury bonds will mature in September, while another P50 billion will fall due in October, according to data compiled by Bloomberg.

In a sign of waning investor demand for longer-dated securities, bids for five-year Treasury bonds auctioned on Wednesday came in at 1.2 times the offer size, smaller than the 3.1 times oversubscription at the previous sale of the same securities in early August. How the Treasury resolves this month's decision — proceeding at higher cost, delaying, or retooling the tenor — will signal how emerging-market sovereigns with similar pressures are managing debt-raising amid tightening global financial conditions. — Bloomberg

Source: Bworldonline