Gov’t makes full award of three-year bond offer

THE GOVERNMENT made a full award of the reissued three-year Treasury bonds (T-bonds) it offered on Wednesday as its yield declined following the surprise rate cut of the central bank and amid continued uncertainty in the economic environment.

The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the reissued three-year bonds as the offer was more than twice oversubscribed, with tenders totaling P68.516 billion.

The three-year T-bonds, which have a remaining life of two years and nine months and carry a coupon rate of 3.625%, fetched an average rate of 2.169% on Wednesday, declining by 5.5 basis points (bps) from the 2.224% quoted in the Nov. 4 auction.

National Treasurer Rosalia V. de Leon told reporters in a Viber message after the auction that the yield on the three-year tenor declined as investors demand for the belly of the curve remains strong.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa, meanwhile, said that the recent reduction in benchmark rates by the Bangko Sentral ng Pilipinas (BSP) also affected yesterday’s auction result.

“The BTr was able to award at lower rates after BSP’s recent policy rate cut still fed into the market and with investors snatching up three-year paper given relatively attractive rates for the medium-dated bonds,” Mr. Mapa said in an e-mail.

The BSP unexpectedly cut benchmark rates to new record lows at its Nov. 19 meeting, the fifth reduction this year, citing the continued uncertainty caused by a fresh surge in coronavirus cases globally and the impact of recent typhoons on the struggling economy.

The Monetary Board trimmed the rates on the BSP’s overnight reverse repurchase, lending, and deposit facilities by 25 bps to 2%, 2.5%, and 1.5%, respectively.

The latest easing move followed a “prudent pause” by the central bank since its June meeting. The central bank has already cumulatively lowered interest rates by 200 bps this year.

At that meeting, the central bank also upgraded its inflation forecast this year to 2.4% from the 2.3% it gave in the October review.

On the other hand, the inflation outlook for 2021 and 2022 were lowered to 2.7% (from 2.8%) and 2.9% (from 3%), respectively, due to the slower-than-expected pickup in domestic activity, the decline in global crude oil prices, and the strengthening of the peso.

Meanwhile, a trader said the yield on the three-year bonds decreased yesterday as investors are still worried about the country’s prospects due to the ongoing coronavirus pandemic.

“With liquidity nowhere to go, market players continued to park their funds at bay amid the prevailing uncertainties surrounding the global pandemic. Clearly, investors’ preference is still at short-term placements and this is expected to persist until any positive developments come to light,” the trader said via Viber.

The Philippine economy remained in recession in the third quarter as gross domestic product (GDP) contracted by 11.5%, following the record 16.9% decline in the three months ended June.

This brought the GDP performance for the first nine months to a 10% contraction. The government expects the economy to shrink by 4.5-6.6% this year.

The Treasury plans to borrow P120 billion from domestic lenders in December: P60 billion in weekly Treasury bill auctions and P60 billion in fortnightly T-bond offerings.

The Treasury is also offering another tranche of Premyo bonds to raise at least P3 billion. The offer period is set to run from Nov. 11 to Dec. 18.

The government wants to raise around P3 trillion this year from local and foreign lenders to help fund its budget deficit, which is expected to hit 9.6% of the country’s GDP. — KKTJ