Bonds likely to fetch higher rates

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TREASURY BONDS (T-bond) on offer this week will likely fetch higher rates, although the government is expected to reject bids as pressure to award eased following its successful retail bond offering.

The Bureau of the Treasury (BTr) is looking to raise P20 billion in the reissued 10-year debt papers on Tuesday with a remaining life of six years and eight months. The T-bonds were originally issued on Aug. 20, 2014 with coupon rate of 4.125%.

Two traders interviewed on Friday said the Treasury may reject bids tomorrow, adding that any bids with yields above 4.75% or 5% will not be accepted.

“I think they will only award if it (the rate) falls below 4.75% since I think the market will watch for higher rates,” a trader said.

The other trader noted that: “If the government feels that the 5% is too expensive for them, [they can reject the bids].”

At the secondary market last Friday, the yield on the 10-year bonds closed the week at 5.7039%, while the seven-year bonds were quoted at 5.4379%.

The traders said the successful offering of retail Treasury bonds (RTB) may cause the government to reject bids that are too high.

“There’s no pressure for BTr to issue after the [retail bonds auction] so we are expecting bids with high yields will be rejected,” the first trader said.

“The Treasury has the bullets to reject bids,” the trader said.

The Treasury awarded P130 billion worth of five-year RTBs last Nov. 20 with rate of 4.625% after the initial P30-billion offer was met with demand worth P191.8 billion.

These bonds were offered at a minimum investment of P5,000 and were sold until Nov. 28, earlier than the initial cut-off date of Nov. 29, and are scheduled to be settled today.

National Treasurer Rosalia V. de Leon said last week that demand for the RTBs sold by banks reached over P200 billion.

Meanwhile, at the government’s most recent offering of reissued 10-year bonds last Nov. 7 originally issued earlier this year, the papers were quoted at an average rate of 4.915%, with the Treasury accepting just P10.213 billion in bids from the tenders worth P32.599 billion.

The government also rejected all bids at last week’s auction of Treasury bills as it saw weak demand due to its recent offer of retail bonds.

The Bureau of the Treasury rejected bids totalling P10.5 billion, falling short of the planned P20-billion borrowing.

Broken down, the 91-day debt paper was met with demand worth P3.995 billion, lower than the Treasury’s offer of P8 billion.

The Treasury also rejected P3.466 billion worth of bids for the 182-day tenor, which also fell short of its P6-billion offer.

Lastly, the 364-day debt papers attracted P3.021 billion in demand, also below the programmed borrowing of P6 billion.

The government borrows from both local and external sources to tap market liquidity in order to finance its budget deficit capped at 3% of gross domestic product, or about P482.1 billion.

This year, the government has set a P727.64-billion borrowing plan, 80% of which or P582.11 billion will be sourced from local lenders through T-bills and Treasury bonds. The P145.53-billion balance, meanwhile, will be borrowed from external creditors.

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