Gov’t partially awards seven-year bonds

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By Karl Angelo N. Vidal, Reporter

THE GOVERNMENT made a partial award of reissued seven-year Treasury bonds (T-bonds) on Tuesday even as the rate inched higher as concerns on inflation lingered ahead of the policy meeting of the US central bank.

At yesterday’s auction, the Bureau of the Treasury raised P7.612 billion out of the P10-billion program for the reissued seven-year bonds, even as the offer was oversubscribed, with total tenders by banks and other financial firms reaching P14.382 billion.

The seven-year papers fetched an average rate of 5.976%, 11.1 basis points higher than the 5.865% average fetched when the papers were last sold in May.

Accepted bids were capped at 6%. Tuesday’s awarded rate also inched up from the 5.75% coupon.

Had the government proceeded with a full award, the debt papers could have fetched an average rate of 6.003%.

At the secondary market before the auction, the seven-year papers were quoted at 6.4393%.

The bonds rallied to fetch a lower yield of 5.98% as trading closed.

After the auction, Deputy Treasurer Erwin D. Sta. Ana said the demand for the seven-year bonds “remained unchanged” from the previous auction.

“If you analyze the bids coming from the [government securities eligible dealers], it’s at the level where it was [during the previous auction],” Mr. Sta. Ana told reporters.

The government borrowed P4.9 billion from the reissued seven-year bonds it placed on the auction block last May 16. Accepted bids were capped at 5.95%.

“We felt that it didn’t move much although there is a slight uptick in today’s rates compared to what was awarded before,” Mr. Sta. Ana said on Wednesday, adding “market [demand] was there” for the seven-year papers.

The official added that factors such as rising inflation as well as bets on a rate hike from the US Federal Reserve this week were considered by the investors.

“In our pre-auction surveys, [the investors were] saying that there [was] still concern in inflation, and of course, the Fed will meet this week,” he said.

Inflation accelerated to another five-year high of 4.6% last month from the 4.5% recorded in April, as well as the 4.3% logged in March. This is well beyond the government’s 2-4% target.

However, the May inflation print was slower than the 4.9% market consensus in a BusinessWorld poll.

Meanwhile, the Fed is expected to hike its benchmark rates during its policy meeting this week amid low unemployment and rising wages.

“It’s widely expected for [the Fed] to raise rates but I think that’s still an uncertainty that the market may have factored in,” Mr. Sta. Ana said.

Meanwhile, bond traders said on Wednesday that the auction received tepid demand as investors chose to stay on the sidelines ahead of the policy meeting of the Fed as well as the European Central Bank.

“As expected, the demand was on the weaker side given the economic data to be released this week so many investors opted to stay on the sidelines,” a bond trader said in a phone interview.

The Treasury is holding two auctions per week this quarter — one for Treasury bills and another for T-bonds — to reflect increased borrowing requirements.

The government plans to borrow a total of P888.23 billion this year to plug its budget deficit that is capped at 3% of the country’s gross domestic product.