Gov’t fully awards bonds
THE GOVERNMENT accepted all bids for the reissued threeyear Treasury bonds (T-bond) it offered on Wednesday even as rates went up due to inflation expectations and amid excess liquidity in the market.
The Bureau of the Treasury (BTr) borrowed P15 billion as planned at yesterday’s auction of reissued three-year bonds with a remaining life of two years and five months.
The offer was less than twice oversubscribed as total tenders from investors amounted to P26.287 billion.
The reissued T-bonds, which carry a coupon rate of 4.25%, fetched an average yield of 5.136% on Wednesday, 43.3 basis points higher than the 4.703% recorded in the May previous auction of the same tenor.
At the secondary market prior to the auction, the debt notes were quoted at 5.0557%.
At the close of the trading, the three-year bonds yielded 5.0593%.
National Treasurer Rosalia V. De Leon said the Treasury decided to fully award the bonds as the three-year tenor continues to be a “sweet spot” for investors.
“We see that there’s continued appetite in the market [because it’s] shorter than the front end of the curve… That’s a sweet spot for the investors so we decided to [do a] full award,” Ms. De Leon told reporters following the auction, noting that rates bid by the participating banks were at par with secondary market yields.
She said the rate went up as players were seeking additional buffers in case the market moves.
“There’s also continuous expectation that based on the pronouncement, inflation would pick sometime in September.”
The Bangko Sentral ng Pilipinas (BSP) said inflation could peak in August or September before eventually slowing down to the 2-4% target band by next year.
“Latest baseline forecasts have shifted higher over the policy horizon, suggesting that inflation will remain elevated in 2018 with the peak occurring sometime in the third quarter, and will revert to the inflation target of 2-4% in 2019,” BSP Governor Nestor A. Espenilla, Jr. said in a speech in Makati City on Aug. 14.
Last month, headline inflation accelerated to a multiyear high of 5.7%, averaging 4.5% as of end-July.
In a bid to temper the rise in prices, the monetary authority fired off its strongest response in a decade earlier this month, raising benchmark rates by 50 basis points.
“Unlike in the bills where it’s more on the short end, here you still have the duration of three years so they would still provide for that cushion for the purposes of avoiding the M2M (mark to market) losses,” Ms. De Leon added.
The National Treasurer said the market continues to lean towards the short end of the curve amid strong liquidity brought about by the government’s maturing debt.
Ms. De Leon said on Tuesday that P9 billion in debt is about to mature this week on top of the P86 billion paid out on Aug. 18.
“There’s liquidity but the preference continues to be on the short part of the curve,” she added.
Meanwhile, a bond trader said rates seen at yesterday’s T-bond auction picked up from the previous offering due to the latest local developments.
“The auction was in line with expectations. The rates climbed from the previous auction as we saw the BSP hiked interest rates and the inflation picked up after the last auction,” the trader said in a phone interview.
The Treasury is raising P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in T-bonds.
The government plans to borrow P888.23 billion this year from domestic and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.