Bonds partially awarded

THE GOVERNMENT made a partial award of the seven-year Treasury bonds (T-bonds) it offered on Wednesday as yields continued to rise amid with expectations of further interest rate hikes in the United States.

The Bureau of the Treasury (BTr) only accepted P4.915 billion of its P10-billion program at yesterday’s auction of reissued seven-year papers with a remaining life of six years and 11 months.

The rejection of some bids came even as the offer was oversubscribed — attracting P15 billion in tenders — as the average yield came in at 5.865%, higher than the 5.712% recorded in the previous offer as well as the coupon fetched when the bonds were first issued on April 11.

This was however lower than the 6.3357% quoted for the bonds at the secondary market before the auction.

At the close of trading, the seven-year papers rallied to fetch a 5.8503% yield.

Deputy Treasurer Erwin D. Sta. Ana said yesterday’s auction saw “quite a good turnout” in terms of banks’ bids, even as he noted that the market prefers shorter-dated bonds, such as the three-year and five-year papers.

However, he said the higher returns sought by investors for the bonds auctioned yesterday were in anticipation of possible further policy tightening from both the local and the US central bank.

“They are looking at the inflation picture and then possible further moves from the central bank, and of course you are also contending with possible US rate hikes. So these are the things that the market is factoring in,” Mr. Sta. Ana said.

The BSP last week hiked key rates by 25 basis points amid accelerating inflation and robust economic growth. Rates now stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.

Meanwhile, the US Federal Reserve raised its benchmark rates by 25 basis points in its March meeting, and sees two more hikes within the year.

Sought for comment, a trader said in a phone interview that yields on the seven-year bonds followed rates of the 10-year US Treasuries that earlier hit their highest level since 2011.

“It increased because the 10year US bond, it’s above 3.06%