By Karl Angelo N. Vidal, Reporter
THE GOVERNMENT partially awarded the reissued 20-year Treasury bonds (T-bonds) it offered Tuesday with yields picking up as the rising interest rate environment prompted investors to be more cautious.
At its auction on Tuesday, the Bureau of the Treasury raised just P4.12 billion out of the planned P10-billion borrowing from the reissued long-tenored notes with a remaining life of 19 years and eight months.
Total tenders reached P14.2 billion, still above the amount the government wanted to raise.
The 20-year bonds fetched an average rate of 6.979%, 12.9 basis points higher than the 6.85% average fetched during the last 20-year T-bonds auction in May. This was also higher than the 6.5% coupon rate set in February.
Had the government made a full award of the bonds, the rate would have climbed to 7.11%.
At the secondary market yesterday before the auction, the 20-year papers were quoted at 7.3839%. It fetched a higher rate of 7.3911% at the market’s close.
Deputy Treasurer Erwin D. Sta. Ana said the Treasury decided to partially award the bonds it placed on the auction block to keep the rates in check.
“We looked at the quality of the bids… We tried to look where the sweet spot was, so what we can say as the optimal market level, that’s the driving force behind the partial award,” Mr. Sta. Ana told reporters following the auction.
He added that the Treasury saw demand from the investors despite receiving non-competitive bids from its dealers.
“Obviously, because of the rising interest rate environment, there is really more of a cautious stance taken by some market participants. But then again that’s tempered by the demand in the long end.”
Last week, the US Federal Reserve decided to raise its benchmark rate by a quarter of a percentage point amid improved economic conditions. The federal funds rate now stands at a 1.75%-2% range.
The market is also awaiting for the policy decision of the Bangko Sentral ng Pilipinas (BSP) during its meeting today.
In a BusinessWorld poll, six out of 10 economists expect the BSP’s rate-setting Monetary Board to stay on hold amid signs that domestic inflation may be slowing.
Last month, headline inflation accelerated to a fresh five-year high of 4.6% from the 4.5% logged in April. However, this was lower than the 4.9% expected by the market.
“[If the] market gets more clarity on the policy agenda of the BSP, we could probably see some improvements in terms of auction participation,” Mr. Sta Ana said.
Meanwhile, a bond trader said the result of the 20-year bond auction was in line with market expectations.
“It was in line with the market expectations because investors were looking at bids carrying 6.75%-7% rate to be accepted,” the trader said.
“Although, the T-bonds were only partially accepted given the higher bids by the market,” the trader added.
This quarter, the Treasury is holding two auctions per week — one for Treasury bills and another for T-bonds — to reflect increased borrowing requirements, as it is set to raise P325 billion via the domestic market in the period.
The government 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.

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