THE GOVERNMENT fully awarded the 10-year Treasury bonds (T-bond) it placed on the auction block on Tuesday amid overwhelming demand as investors sought to park their funds in longer-dated instruments.
The Bureau of the Treasury (BTr) raised P20 billion as planned through the fresh 10-year debt papers on Tuesday. It received tenders totalling P52.989 billion, more than twice the amount the government intended to borrow.
The 10-year T-bonds fetched a coupon of 6.875% with an average rate of 6.829%, 14.6 basis points lower than the 6.975% fetched during the previous auction.
To take advantage of yesterday’s strong demand, after the auction, the Treasury decided to open a tap facility to raise another P20 billion in 10-year papers carrying the same rate.
The facility will be limited to the 10 firms who have been named as market makers by the Treasury, who are given privileges like this in exchange for obligations like submitting rate bids within a prescribed range.
Based on the PHP Bloomberg Valuation Service Reference Rates, the 10-year debt notes were quoted at 6.976% yesterday.
Following the auction, National Treasurer Rosalia V. De Leon said the Treasury was pleased with the result of the bond offering.
“We now see that the appetite is really toward the long end — on the 10 years this time,” Ms. De Leon told reporters yesterday. “It came out again [from] the significant downtrend of inflation. Even in terms of the path, it is expected that it will continue to go down…”
Inflation continued to ease last month, registering a 5.1% print in December. This was slower than market expectations as well as the 5.2-6% estimate range of the Bangko Sentral ng Pilipinas.
For 2018, headline inflation averaged 5.2% — faster than the central bank’s 2-4% target range and the highest since 2008’s 8.2%.
The central bank is expecting inflation to return “to below four percent by around the end of Q1 2019,” well within the 2-4% target band of the government.
“We also see that there’s a liquidity onshore as well… Hopefully for the next auctions it will be replicating this kind of auction outcome,” Ms. De Leon added.
Sought for comment, bond traders said the auction result was “well within expectations” of the market given the improved inflation outlook.
“As expected, it was a pretty good auction since CPI (consumer price index) outlook is better,” a trader said in a text message.
The government plans to raise P360 billion this quarter through domestic means. Some P240 billion will be borrowed through 12 weekly T-bill auctions during the three-month period, while P120-billion worth of T-bonds will also be issued through six fortnightly auctions.
The state wants to borrow P1.189 trillion in 2019 to fund its spending plans. Of the amount, 75% will be sourced domestically while the remainder will be from foreign creditors.
However, the 2019 national budget has yet to be passed by Congress and signed into law, leaving the fiscal program hanging so far. — Karl Angelo N. Vidal

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