By Lawrence Agcaoili

The Philippines issued P144.5 billion worth of new five- and seven-year bonds in exchange for existing debt as it seeks to boost liquidity, cut financing costs and lengthen the borrowing maturity.

The swap retired P136.6 billion worth of existing bonds due between Feb. 1 this year and Jan. 27, 2016, National Treasurer Roberto Tan said yesterday.

Tan said investors were locking in on debt instruments that would give them higher yields.

The Treasury issued P78 billion of bonds maturing in 2016 with a yield of 7 percent, and P66.5 billion of debt due in 2014 with a coupon of 6.25 percent and a yield of 6.35 percent. Yields of five- and seven-year debt fell to their lowest in almost a year this month as investors purchased existing notes to qualify for the swap.

?I attribute that to inflationary projection, which is benign, and investors are now trying to lock in higher pick up of yields,? Tan said.

Accrued interest on the retired debt will be paid for with additional bonds, partly accounting for the difference in the value of the securities sold and repurchased.

?This debt swap gives the government the leeway to manage its finances over the next few years,? said Roland Avante, a treasurer at the Philippine unit of Taiwan?s Chinatrust Commercial Bank. ?Yields were attractive enough to entice more investors to participate. The huge liquidity available creates the interest for players to look at well-priced issues in the future.?

Tan said the bond swap aims to boost the liquidity of the domestic debt market through the issuance of benchmark bonds.

?Deeper local markets are more valuable in times like these when international markets are volatile,? Tan said.

Finance Secretary Margarito Teves said the issuance of liquid benchmarks would help boost the liquidity of the domestic bond market.

?The market?s unequivocal support for the creation of large, liquid benchmarks shows the increased maturity and sophistication of the local fixed-income market,? said Teves.

The government has undertaken a series of bond swaps since 2006. The Philippines swapped P165 billion worth of eligible bonds into new three-, five-, seven- and 10-year benchmark bonds worth P180 billion in 2006 and exchanged P97.5 billion worth of new three- and five-year benchmark bonds with P88.6 billion worth of old debt papers in 2007.