Gov’t fully awards 7-year bonds

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Bureau of Treasury

By Melissa Luz T. Lopez
Senior Reporter

THE GOVERNMENT raised P15 billion via Treasury bonds (T-bonds) yesterday, and looked to raise more funds via a tap facility given overwhelming demand for the papers at lower prices.

The Bureau of the Treasury made a full award of reissued seven-year papers on Tuesday, which have a remaining life of six years and four months. This came as market players put forward P62.227 billion worth of bids, which was more than four times the programmed offering.

The long-term notes also saw its rate drop to a 6.974% average, 11.1 basis points lower than the 7.085% fetched when the papers were last awarded in September.

The yield is likewise below the 7.084% market rate yesterday, based on the benchmark Bloomberg Valuation Service reference rates.

The seven-year IOUs originally carried a 5.75% coupon when these were first floated in April. This week, market players asked for returns ranging from 6.9% to 6.99%.

National Treasurer Rosalia V. De Leon said the strong demand for T-bonds reflects a last ditch effort among banks and investment firms to allocate their portfolios now as they anticipate rates to trend lower in 2019.

“We are pleasantly surprised,” Ms. De Leon told reporters after the auction. “Actually we are seeing…the preference going into the intermediate, they are going longer because they want to lock in the rates right now.”

“The expectation is that the rates will further be falling already given that the inflation is expected to already trend downwards [with] lower oil prices, peso is appreciating, so they better lock in already on the long end of the curve,” the official added.

The Treasury also chose to open a tap facility to accommodate other bids that did not meet the first cut-off, where it raised P15 billion more as planned. Tenders reached P53.9 billion.

The tap facility was limited to the 10 firms that have been named as market makers by the Treasury, which are given privileges like this in exchange for obligations like submitting rate bids within a prescribed range.

The government also opened the tap window last week and raised an additional P15 billion worth of reissued five-year T-bonds, as appetite for the papers amounted to P48.857 billion during the 1 p.m. cut-off.

Raising more funds from the tap facility may allow the Treasury to advance its fundraising activities and avoid higher interest rates in future note offerings.

Sought for comment, a bond trader said the better turnout of the auction came on the back of an “improved near-term CPI (consumer price index) outlook,” as investors appear convinced that inflation is indeed on its way down coming from a peak of 6.7% in September and October.

The trader noted that the tap facility will likely be fully subscribed given upbeat market demand.

Meanwhile, Ms. De Leon said they remain watchful of developments as they time the issuance of dollar bonds to global investors. In particular, they are looking out for the minutes of the Nov. 7-8 meeting of the United States Federal Reserve to look for cues for the expected rate hike in December.

Speeches by Fed officials scheduled this week are also anticipated as authorities want to digest the “slant” of their remarks.

Another major event eyed by markets is the upcoming G-20 meeting of US President Donald J. Trump and Chinese President Xi Jinping, as they seek to settle the trade war between the world’s largest economies.

The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in T-bills and another P90 billion in Treasury bonds.

This is part of the P888.23-billion borrowing plan this year from local and foreign sources to fund the budget deficit and support increased government spending.