THE GOVERNMENT yesterday made a partial award of reissued 20-year Treasury bonds (T-bonds) on Tuesday as lenders sought higher rates due to expectations on monetary tightening by central banks here and abroad.
At yesterday’s auction, the Bureau of the Treasury raised just P4.26 billion out of the planned P10-billion borrowing from the reissued bonds maturing on Feb 22, 2038.
Total tenders reached P19.361 billion, nearly double the amount the BTr wanted to raise.
The 20-year bonds fetched an average rate of 6.85% with a coupon rate of 6.5%. This was higher than the 6.414% average rate fetched when the 20-year bonds were last sold in February.
Had the government made a full award of the bonds yesterday, the average rate would have climbed to 6.951%.
At the secondary market, before yesterday’s auction, the 20-year papers were quoted at 7.3179%.
It fetched slightly lower yields at 7.3143% at the close of the trading.
National Treasurer Rosalia V. De Leon said after the auction that it saw interest in the long-end from banks and other financial institutions as it shrank the offer volume for the bonds.
“We see that there’s interest now on the long end of the curve [because] the size is small and that was also the intention when we reduced the volume [this quarter since] we are doing… bond offerings every week,” Ms. De Leon said.
“We are also tempering the [rate] increase. We feel that it would be too much of an increase in terms of where we were in the last auction for the 20-year bonds. It’s not yet the time to step into the vicinity of 7%.”
Ms. De Leon added that investors priced in their expectations of tighter monetary policy from the Bangko Sentral ng Pilipinas (BSP) as well as the US Federal Reserve (Fed).
“I think investors are still putting [in their] expectations as the BSP policy meet draws near. Also, in anticipation of the Fed action and their rate increases [due to the] hawkish sentiments and pronouncements [of its officials].”
The Fed officials during their March meeting saw the economy to strengthen and the inflation to rise “in the coming months,” fuelling investors’ belief that the Fed will continue to hike its interest rates this year.
The US central bank’s Federal Open Market Committee will hold its policy meeting on May 1-2.
“Most of the dealers are still concerned about the domestic inflation and deficit the government still needs to fund,” the trader said in a phone interview.
Inflation has been on a steady ascent for four months, hitting a three-year peak of 4.3% in March under the 2012 base year amid rising fuel prices and higher commodity costs due to the tax reform law.
The continuous acceleration of inflation reinforced market expectations of a rate hike from the BSP within the year.
The BSP’s Monetary Board will meet for the third time this year on May 10.
This quarter, the Treasury is holding two auctions per week — one for T-bonds and another for Treasury bills — to reflect increased borrowing requirements, as it is set to raise P325 billion via the domestic market in the period.
It plans to borrow P888.23 billion from local and foreign sources this year to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal

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