Gov’t makes full award of bonds as investor demand stays strong
THE GOVERNMENT yesterday fully awarded its offer of re-issued three-year Treasury bonds (T-bonds) following strong demand from the market amid excess liquidity and as investors were less cautious of the US Federal Reserve’s planned interest rate hikes.
The Bureau of the Treasury raised P15 billion as planned at yesterday’s auction of the threeyear debt papers that have a remaining life of two years and 11 months.
Total tenders reached P33.98 billion, more than twice the government’s offer.
The debt papers were quoted at 3.492%, climbing 12 basis points ( bps) from the 3.364% average rate fetched for T-bonds of the same tenor awarded at a Jan. 10 auction.
During last month’s auction, the government also fully awarded the fresh three-year debt notes it offered. The coupon rate for that issuance was higher than the 3.4325% quoted for the threeyear bonds at noon time yesterday before the exercise.
At the close of trading at the secondary market yesterday, the bonds fetched a yield of 3.4734%.
Returning National Treasurer Rosalia V. De Leon told reporters after the auction that the government decided to fully award the debt notes as bids by banks were in line with rates in the secondary market.
“We have a strong and healthy demand from the market — bid-to-cover is about 2.27 times,” she said. “I am pleased with the results of the auction, we see the very healthy participation from our GSEDs ( government securities eligible dealers).”
Ms. De Leon noted that investors have already priced in an uptick in domestic inflation as well as expectations that the Bangko Sentral ng Pilipinas ( BSP) will keep interest rates steady in its policy meeting this Thursday.
The National Economic and Development Authority reported yesterday that the average rise in prices of goods and services jumped to 2.7% in January from the 2.6% recorded in December 2016. This was also faster than the 1.3% logged in January 2016, although it still fell within the government’s 2-4% target for the year.
Meanwhile, economists have said they expect a possible rate hike from the central bank as early as first semester this year, but not during the Feb. 9 BSP policy meeting.
The regulator has kept interest rates unchanged since a hike in September 2014, except for procedural cuts in June last year for the shift to an interest rate corridor. The rates now range from 2.5% to 3.5%, with the benchmark overnight borrowing rate at 3%.
“So I suppose that is already included in the pricing of the securities by the market... I hope that this continued strong participation from the market would be there during the succeeding auctions of the Treasury. We are also discussing with them in terms of the appetite eventually for the succeeding auctions as we move forward with the funding program for the rest of the year,” Ms. De Leon noted.
“We are still seeing a very liquid domestic market,” she said, noting that the central bank’s auctions under its term deposit facility have also been met with strong demand from the market.
LIQUIDITY
Sought for comment, a bond trader said by phone: “There is always supply for the three-year T-bonds auction and the rates requested did not climb that high, just enough, and we saw demand because the market is still liquid.”
“At the same time, markets are expecting that the Fed will raise interest rates by June and not in the near term, so US Treasury yields are still okay, since we follow US Treasuries,” the trader added. “So the market is okay with buying in yesterday’s auction since the Fed rate hike won’t happen within the quarter.”
Markets are anticipating the US regulator to tighten policy rates by as much as two to three times this year after the Fed lifted borrowing costs by 25 bps to within 0.50%-0.75% in December in its the first tightening move since it lifted rates in December 2015 and the second in almost a decade.
Meanwhile, asked what products the Bureau of the Treasury will introduce during her term, Ms. De Leon said: “We are looking at some structures again. Like before, we have been discussing about how we will be coming out with instruments that are more aligned with market conditions and at the same time would meet the requirements of the investing market.” She however declined to go into detail.
“[Of course,] we still have to run it with our GSEDs and see how they would react to it,” she said.
Ms. De Leon added that the Treasury’s Registry of Scripless Securities will be live by second quarter this year.
“I think we have done good progress on that since we started two years ago and hopefully we have a timeline, we are now in the process of validating the outcomes and eventually doing test runs as well.”
The government plans to borrow up to P180 billion from the domestic market this quarter through offerings of P90 billion worth of both Treasury bills and T-bonds to fund its fiscal deficit.