THE government made a full award of the seven-year Treasury bonds (T-bond) it placed on the auction block on Tuesday, indicating strong investor demand for medium-term instruments.
The Bureau of the Treasury (BTr) raised P20 billion as planned from the seven-year securities yesterday. Demand for the notes amounted to P66.917 billion, more than thrice the amount the government wanted to raise.
The seven-year bonds fetched a 6.25% coupon, with an average rate of 6.087%, slumping by 100.3 basis points from the 7.09% raked in the previous auction last December.
Meanwhile, market players asked for returns ranging from 5.75-6.25%.
Based on the PHP Bloomberg Valuation Service Reference Rates, the market rate of the seven-year bonds stood at 6.193%.
To capture excess demand, the Treasury decided to open a tap facility to raise another P10 billion, carrying the same rate.
The facility was offered from 2 to 4 p.m. to select financial institutions who have been named as market makers.
National Treasurer Rosalia V. De Leon said the surging investor appetite for seven-year T-bonds came as market players took advantage of current spreads, as they see interest rates tapering down further.
“I think their preference is on the belly of the curve. At the same time, they are taking advantage of the rates right now because they see that rates will eventually taper down given that they would expect inflation to really go on a downtrend,” Ms. De Leon told reporters yesterday.
Headline inflation eased further to 4.4% in January, marking the third straight month of decline from a nine-year high of 6.7% in September and October, although still above the 2-4% target band, as food and beverage costs grew at a slower pace.
The Bangko Sentral ng Pilipinas (BSP) now expects inflation to trend even slower until next year, with price movements seen to return to target as early as next month.
“They would expect inflation… to decline significantly coming from the pronouncements also from the BSP. They see that it would be going back to the target path of 2-4%,” Ms. De Leon added.
Sought for comment, a bond trader said the auction results were within expectations.
“Of course, the rates went down from last year given the low inflation, stronger peso as well as the dovish Fed (US Federal Reserve),” the trader said in a phone message.
For the first quarter, the government is planning to borrow P360 billion. Some P240 billion will be borrowed this quarter through 12 weekly T-bill auctions. On the other hand, P120 billion worth of T-bonds will also be issued through six fortnightly auctions. — Karl Angelo N. Vidal

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