Treasury raises P70B from retail bonds on first day of public offer

THE GOVERNMENT has raised P70 billion from its auction to price its three-year retail Treasury bonds (RTBs) after investors swarmed the offer, but with yields spiking up amid a higher interest rate environment and expectations of the US Federal Reserve hiking borrowing costs by at least two more times this year.

The Bureau of the Treasury on Tuesday awarded P70 billion in its initial offer of RTBs with a three-year tenor that fetched a coupon rate of 4.25%. Total tenders reached P86.172 billion, nearly three times the government’s original P30-billion offer.

The 4.25% coupon was higher than 3.9284% fetched by threeyear Treasury bonds in the secondary market as of noon time yesterday.

The rate is also more than the 3.5% fetched in the last RTB sale held in September 2016. The government raised P10 billion during that auction of 10-year retail bonds.

National Treasurer Rosalia V. De Leon said yields fetched were higher as they “are just going by the market, and expectations on eventual and succeeding rate hikes — not just one, but two… from the Fed.”

The Fed’s first tightening move for 2017 happened at the close of their two- day Federal Open Market Committee meeting this month, where it hiked interest rates by 25 basis points. Fed policy makers earlier reiterated their stance of having at least three interest rate increases this year.

“And they are already pricing in [that] eventually the BSP (Bangko Sentral ng Pilipinas) will follow after the holding steady of the policy rates during the last Monetary Board meeting,” Ms. De Leon told reporters after the RTB auction on Tuesday.

Aligned with market expectations, the central bank kept policy settings steady last Thursday at 3.5% for the overnight lending rate, 3% for the overnight reverse repurchase rate and 2.5% for the overnight deposit rate.

Asked if the government is happy with the volume of bids yesterday, the National Treasurer said: “It is a very healthy volume because the pricing — given the market sounding that we did — I

think this is what the market was already conveying to us. So it’s up to us whether we wanted to get the volume or stick with the lower volume.”

The public offering of the debt papers started yesterday and ends on April 6. Investors can buy the RTBs at minimum denominations of P5,000.

Sought for comment, a bond trader said in a text message: “The offer was within the top range of expectations. The result was good for investors. But since the rate is way higher than last dealt levels of bonds with same tenor, the market adjusted their rates.”

Asked if the yields requested by retail investors were expected, the trader said: “Somehow surprising in the sense that this morning, the benchmark three-year paper is at 3.925%. So expectations for the RTB right before auction were between 4% to 4.125%.”

The trader also noted that market players were hoping that they would get a coupon rate of 4.25% for the debt notes. “People now want to get the highest possible rate with the shortest tenor.”

Asked for an outlook for the public RTB offering, the trader said: “We think that demand may go as high as P100 billion for this paper. Not sure if the government will oblige.”

The government tapped First Metro Investment Corp. and Land Bank of the Philippines as joint lead issue managers, as well as BDO Capital & Investment Corp., BPI Capital Corp., Development Bank of the Philippines, China Bank Capital Corp., and SB Capital Corp. as joint issue managers for this RTB sale.