Gov’t makes full award of fresh five-year bonds at higher rates

THE GOVERNMENT yesterday made a full award of fresh fiveyear Treasury bonds (T-bonds) after banks swarmed the offer amid excess liquidity in the system, but settled for higher yields amid persisting uncertainties offshore.

The Bureau of the Treasury raised P15 billion as planned from its offer of five-year T-bonds maturing on Jan. 26, 2022 at Tuesday’s auction.

The securities were met with strong demand as total tenders reached P35.603 billion, more than twice the government’s offer.

The average rate of the fiveyear bonds was quoted at 3.876%, 63 basis points ( bps) higher than the 3.246% fetched for reissued seven-year T- bonds with a remaining life of four years and 10 months awarded at a May 17, 2016 auction. During that offering, the government also fully awarded the reissued 2021 debt notes.

The coupon rate for the fresh issuance, however, reached 4%, higher than the 3.8417% quoted for the five-year bonds in the secondary market at noon time yesterday before the auction.

At the close of trading yesterday, the bonds fetched a yield of 3.8333%.

The Treasury bureau said in a statement issued after the auction that the coupon rate of the bonds was aligned with market expectations as the rate took its cue from “global adjustments.”

Sought for comment, a bond trader interviewed by phone after Tuesday’s auction said higher yields sought by banks at yesterday’s offering were within market expectations due to global uncertainties brought about by unclear policies from US President Donald J. Trump, as well as the Federal Reserve’s plan to raise rates anew this year.

“I was expecting the market to request for higher rates again [ yesterday] but the market was comfortable with how the Bureau of the Treasury handled the auction. It was well within expectations, rates didn’t go beyond 4%. Currently we are seeing some repositioning on the belly and long end,” the trader said.

The trader also noted that markets are still awash with funds, which was likely the cause of yesterday’s oversubscription.

“The market still has excess liquidity, market players are still awash with cash, so the excess funds that they weren’t able to invest, they invested in yesterday’s auction. But the market was looking at higher rates to invest them,” the trader said.

“We would likely continue following developments abroad, particularly on Donald Trump’s policies that are still not clear... We have to look at it and we’ll likely also look at data coming out in the US, and of course, as it is, markets are still expecting the Fed to hike rates by at most, three times this year,” the trader noted.

Markets are still on a waitandsee mode after the 45th US President failed to provide details on his planned fiscal stimulus for the world’s largest economy in his inaugural speech last Friday.

However, the trader noted that Mr. Trump was somehow able to provide some clarity after he withdrew from the Trans-Pacific Partnership trade deal and reaffirmed his vow of trimming taxes and easier regulations on Monday.

The trader added that markets are also on the lookout for the Federal Open Market Committee (FOMC) meeting next week, where markets are expecting that the US central bank to leave rates unchanged at 0.50-0.75%.

“But investors would more or less want to hear forward guidance on what to expect during the next meeting on March, June, September and December FOMC meeting as there will be economic projections and Fed Chair Janet [L.] Yellen will speak during those meetings,” the trader noted.

The government plans to borrow up to P180 billion from the domestic market this quarter through offerings of P90 billion apiece in Treasury bills and T-bonds.