Gov’t makes full award of 5-year bonds

THE GOVERNMENT yesterday made a full award of reissued fiveyear Treasury bonds (T-bonds) amid strong appetite for the debt papers, but with yields rising as investors bid in line with a higher interest rate environment after the US Federal Reserve tightened policy settings last week.

The Bureau of the Treasury raised P15 billion as planned on Tuesday from its offer of the reissued five-year bonds with a remaining life of four years and 10 months. The securities were met with strong demand as total tenders reached P26.645 billion, nearly double the government’s offer.

The average rate of the debt papers was quoted at 4.132%, 10.2 basis points ( bps) higher than the 4.03% average seen when the T-bonds were auctioned off last Feb. 22 and also a higher than its 4% coupon rate. Authorities also made a full award during the previous auction.

At the secondary market, the five-year bonds were quoted at 4.4607% before the auction. At the close of trading, the papers rallied to yield 4.1046%.

“The auction was quite successful. We received close to twice the size on offer…a bit of an increment from the last five-year auction that we had last month,” Deputy Treasurer Erwin D. Sta. Ana told reporters after the auction when sought for comment.

He added that the higher yields requested by banks were brought about “by the general adjustment in the curve.”

“The market is clearly waiting for other signals externally and developments onshore like how our inflation will build up in the next couple of weeks, and results of the Monetary Board meeting,” Mr. Sta. Ana added.

The Bangko Sentral ng Pilipinas’ ( BSP) policy- setting Monetary Board will hold its second meeting for this year tomorrow.

At its last review, the BSP raised its inflation projections for 2017 and 2018 to 3.5% from 3.3% and to 3.1% from 3%, respectively.

Asked what external signals market players are waiting for, Mr. Sta. Ana said, “The Fed indicated a less hawkish view… There’s also a possibility of two more rate hikes reported.”

Aligned with market expectations, the US central bank, at the close of its two-day Federal Open Market Committee ( FOMC) meeting last week, announced it hiked policy rates by 25 basis points to 0.75-1% for the second time in three months, backed by solid US job gains and as authorities remain bullish that inflation will hit their 2% target for 2017. Global markets were however disappointed after the Fed only reiterated pronouncements of least three interest rate increases this 2017 and retained most of its economic projections for the United States.

Sought for comment, a bond trader said in a phone interview yesterday: “Yields sought by banks were expected, but higher from our expectations of only 4-4.15%.”

“Although not a lot of investors participated yesterday, it’s a good auction given the spread, but at some point, they have to price in what’s happening in the US — that’s why rates were higher, so yields were normal, not at all surprising,” the trader added.

Asked what external or domestic developments markets are looking out for, the trader said, “Markets will watch out for the Fed speakers speaking this week, if authorities will confirm or not their expectations.”

“As usual, markets are also still looking out for political noise at home and domestic inflation,” the trader added.

Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren were scheduled to speak later on Tuesday. Fed Chair Janet L. Yellen is scheduled to speak at a conference on Thursday.

On Monday, Chicago Federal Reserve President Charles Evans, a voter on its policy-setting committee this year, repeated the central bank’s call for two more interest rate increases this year, disappointing dollar bulls who had hoped for more a faster pace of hikes.

Mr. Evans did say, however, that an additional hike was possible if inflation were to pick up. •