Gov’t makes full award of bonds with offer twice oversubscribed

THE BUREAU of the Treasury (BTr) made a full award of reissued 20-year Treasury bonds (T-bonds) yesterday, as bids by banks went down and were aligned with market expectations amid bets of lower domestic inflation and on the back of strong investor demand for longer-termed securities.

At its auction on Tuesday, the government raised P15 billion as planned from the reissued bonds maturing on May 18, 2037. The offer was more than twice oversubscribed, with tenders reaching P31.078 billion.

The 20-year bonds fetched an average rate of 5.035%, 21.5 basis points ( bp) lower than the 5.25% coupon rate set when the bonds were first issued last month and also down 6.9 bps from the 5.104% average yield fetched at the May 16 auction.

The rates fetched yesterday were also lower than the 5.4161% quoted for 20-year bonds at noon time or before the auction.

At the close of the secondary market, the 20-year securities rallied to fetch a lower yield of 5.0117%.

National Treasurer Rosalia V. De Leon said investors now have stronger appetite for longertenored debt papers after the Bangko Sentral ng Pilipinas (BSP) decided to keep borrowing costs unchanged last week while also trimming inflation expectations for the months ahead.

APPETITE

“We are all smiles, we have a very good auction… Appetite for the long tenored bonds is coming back after BSP held rates steady, the rollback of oil prices… Again, inflation expectations are low, so I see that there is now more appetite on the longer end of the curve,” she told reporters yesterday after the auction.

The BSP Monetary Board kept policy rates steady in its meeting last week as it expects inflation to remain “manageable” and will even trend lower in the coming months.

This marked the 22nd straight meeting that the BSP held interest rates at 3.5% for the overnight lending rate, three percent for the overnight reverse repurchase rate and 2.5% for the overnight deposit rate during its second review for the year. Reserve requirement ratios imposed on banks were also retained.

The central bank also trimmed its inflation forecast to 3.1% for this year from the 3.4% projected last month. It also expects inflation to average 3% in 2018 and 2019, still within the central bank’s 2-4% target band.

Sought for comment, a bond trader said rates sought by financial institutions at yesterday’s offering were well within market expectations, noting it was a “good auction overall.”

The government is looking to borrow up to P180 billion from domestic sources this quarter through offerings of P90 billion worth apiece of both Treasury bills and T-bonds to fund its fiscal deficit and support a growing economy.

It secured P150.602 billion from the sale of government-issued papers during the first quarter, lower than its P180- billion program.

Next year, the government plans to borrow P889.7 billion, 22.3% more than its revised P727.64-billion program for 2017.

Broken down, 80% or P711.776 billion will be sourced from local creditors, bulk of which will come from the state’s offering of Treasury bills and bonds while around P177.944 billion will be borrowed from external sources. •