29/05/2025

BIZ & FINANCE THURSDAY | MAY 29, 2025

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Demand at Japan’s 40-year bond auction sinks

WHO restructures, cuts budget after US withdrawal GENEVA: The World Health Organisation (WHO) tried to stabilise its finances at its annual assembly which ended on Tuesday, but still remains well short of reaching its already reduced target. Hit by the withdrawal of its biggest donor, the United States, the WHO trimmed its already smaller 2026-2027 budget from US$5.3 billion to US$4.2 billion. The UN health agency’s programme budget for 2024-2025 was US$6.8 billion. The slimmer budget plan was approved during the World Health Assembly, which serves as the WHO’s decision-making body. But a funding gap of some US$1.7 billion remains. WHO budgets run in two-year cycles. Founded in 1948, the agency initially received all its funding through “assessed contributions” – nations’ membership fees calculated according to wealth and population. However, the WHO became increasingly reliant on “voluntary contributions”, which only go towards outcomes specified by the donor. By the 2020-2021 cycle, assessed contributions represented only 16% of the approved programme budget. And the organisation had long been over-reliant on voluntary funding from a few major donors. At a pledging event last week, donors put in an additional US$210 million for the 2025-2028 investment round, supporting the WHO’s base budget. That included US$80 million from Switzerland, US$57 million from the Novo Nordisk Foundation, $13.5 million from Sweden and US$6 million from Qatar. Upon returning to office in January, US President Donald Trump started the one-year process for leaving the WHO, and had frozen virtually all American foreign aid. The United States was traditionally the WHO’s largest donor. Washington’s departure, and its refusal to pay its membership fees for 2024 and 2025, has left the WHO reeling financially. The budget cuts have forced the WHO to reorganise. The organisation is reducing its executive management team from 14 to seven due to the dramatic US funding cuts.

o Fiscal deficit concerns driving worrying surge in long-term yields

TOKYO: A lacklustre auction for Japan’s longest-dated bonds yesterday did little to relieve sovereign debt markets where fiscal deficit concerns have driven a worrying surge in long-term yields. Heavily indebted Japan’s government bonds have become the “canary in the global duration coalmine”, Goldman Sachs analysts wrote last week after a very poor sale of 20-year bonds. The Ministry of Finance sold about ¥500 billion (RM14.6 billion) of 40-year bonds with a bid-to-cover ratio of 2.21, the lowest since a sale in July last year and well below the historical average of 3, signifying tepid demand. The poor results come a week after Japan’s 40-year yields touched a record high 3.675%, along with an all-time high for 30-year paper and a multi-decade peak for 20-year debt. On Tuesday, bonds rallied after the Ministry of Finance was said to have circulated a survey among major bond buyers and accelerated gains after Reuters reported the ministry is considering reductions to its sales of super-long bonds. The swift recovery in JGBs in the previous session may have damped demand at the 40-year auction, said Shoki Omori, chief desk strategist at Mizuho Securities.

maker had last year sold 436.9 million shares, or roughly 3.5% of ITC’s outstanding shares, for about US$2 billion in what was India’s third-largest block deal ever. The British firm in February forecast 1% growth in its annual revenue, citing tax headwinds in key markets such as Bangladesh and Australia. – Reuters planes, and said more aircraft could be leased as its new fleet orders arrive. “We’re testing the waters.” Last year, Cebu Pacific agreed to buy a minimum of 70 Airbus A321neo aircraft to secure its long-term fleet needs. The wet lease agreement also come on the heels of flyadeal’s plans to expand into Southeast Asia after ordering 10 A330neo wide-body jets as it expands in long-haul markets. Greenway said three of the 10 aircraft it ordered will be in operation by July 2027, with two more planes arriving towards the end of that year. “Southeast Asia is our key destination for these aircraft,” Greenway said, eyeing the Philippine, Malaysian and Indonesian markets. “Obviously, the Philippines is interesting because of our partnership with Cebu Pacific.” Flyadeal could bring Philippine traffic into the Gulf region, including overseas workers, he said. – Reuters step in if necessary, said Frances Cheung, head of currency and rates strategy at OCBC. “Our base-case is for BOJ to stick with its plan to reduce JGB purchases on the previously determined step-down schedule. “But should long-end yields increase more rapidly, some shifts in allocation of reductions by remaining maturity cannot be ruled out.” A change in issuance plans by the MOF would be positive for super long bonds, but now attention turns to how much it will scale things back, said Shinichiro Kadota, head of Japan FX and rates strategy at Barclays Securities Japan. “A smaller than expected reduction could be a cue for a sell-off.” The MOF may look to pre-Covid levels of super-long supply, which would be about ¥3 trillion less than current levels, Societe Generale analysts said in a note. The trigger for last week’s sell-offs in JGBs was an auction of 20-year debt that saw the tail – the difference between the lowest and average accepted prices – reach its widest since 1987, signalling weak demand. The next test for the super-long segment will be a 30-year bond auction next week. – Reuters

He added that sovereigns like the United States and Japan will likely face ever steeper borrowing costs. “Even if many countries cut the issuance, there is going to be pressure for long-end yields to go higher, so that’s a scary one.” JGB yields ticked higher and the yen erased losses after the auction yesterday. Thirty-year yields were affected the most, up 10 basis points on the day at 2.93%, while 40-year yields rose 5 basis points to 3.335%. Long-dated debt has sold off globally in recent weeks on concerns tax cuts and a chaotic roll-out of sweeping tariffs by US President Donald Trump will stoke inflation and impel governments to spend more. That has driven up the term premium – the extra yield offered to buyers in exchange for locking up their money in longer-dated securities. Moody’s on May 17 became the last major rating agency to strip the United States of its top grade because of growing debt, which stands at about 124% of GDP.

But the situation is more precarious in Japan where the debt ratio is double that and the central bank has slashed its bond buying to support the economy. The Bank of Japan (BOJ) still holds more than half of all outstanding JGBs, a holdover of decades of monetary stimulus. Finance Minister Katsunobu Kato warned on Tuesday that higher rates could further imperil Japan’s finances and pledged “appropriate” management of its debt. A reduction in issuance of 20-, 30- or 40-year JGBs would be counterbalanced by increased sales of shorter-dated debt, sources told Reuters, meaning overall issuance for the fiscal year would remain at 172.3 trillion yen. BOJ Governor Kazuo Ueda said in Parliament yesterday that large swings in super-long JGB yields could affect yields on shorter-term paper. The weak auction and subsequent market reaction add to pressure on the Ministry of Finance (MOF) to scale back super-long debt sales and also for the BOJ to

Cebu Pacific to lease two jets to flyadeal in lean months MANILA: Philippine budget airline Cebu Pacific said yesterday it would lease two Airbus A320 jets to Saudi budget carrier flyadeal to generate revenue from its excess capacity during the Southeast Asian country’s low season. In the “wet lease” agreement, Cebu Pacific will rent the narrow-body aircraft, along with its pilots, crew and maintenance, to flyadeal during the Philippines’ lean months in July and August, a busy period for the Saudi carrier. “We have this natural symbiosis where my peak is not his and vice versa,”flyadeal CEO Steven Greenway said at a press conference. Cebu Pacific CEO Michael Szucs said the deal was the first time the budget carrier had leased out its

Cebu Pacific passenger jets at the tarmac of Terminal 3 at the Ninoy Aquino International airport in Metro Manila. – REUTERSPIC The number of departments is being reduced from 76 to 34. – AFP British American Tobacco sells US$1.5 billion stake in India’s ITC

NEW DELHI: British American Tobacco (BAT) has sold a US$1.5 billion (RM6.3 billion) stake in Indian consumer goods company ITC at 413 Indian rupees per share, according to a term sheet seen by Reuters. The company sold 313 million shares in ITC, representing 2.5% of ITC, according to the term sheet.

This final amount exceeded its initial plan to sell up to 290 million shares in the deal, valued at approximately US$1.4 billion. The final sale price represented a 4.8% discount to ITC’s closing price of 433.90 rupees on Tuesday. Shares of ITC dropped nearly 3% to 421.70 rupees yesterday. The stock was the top loser on

both Nifty 50 and the FMCG index. BAT will remain ITC’s largest shareholder after the deal, according to LSEG data. Goldman Sachs and Citigroup led the deal, the term sheet showed. The deal is the second major block trade in India this week after IndiGo co-founder Rakesh Gangwal

sold a 5.7% stake in the low-cost carrier worth US$1.36 billion. BAT said it would increase its 2025 £1.1 billion (RM6.3 billion) share buyback programme by 200 million pounds as a result of the deal, which is not expected to have any other impact on its annual outlook. The London-listed cigarette