Gov’t makes full award of bonds amid rise in rates

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Bureau of Treasury (BoT)

By Melissa Luz T. Lopez, Senior Reporter

THE GOVERNMENT raised P15 billion worth of 10-year Treasury bonds (T-bonds) yesterday as planned amid strong demand, with the surge in yields within expectations.

The Bureau of the Treasury made a full award of reissued debt papers which had a remaining life of nine years and four months. Tuesday’s auction received overwhelming bids totalling P28.306 billion, nearly double the amount the state wanted to shore up.

The long-term notes fetched an average rate of 8.035%, which is higher than the 6.25% coupon rate when the papers were first issued in March. The instruments later on fetched a 6.35% yield when these were reissued in May, with this week’s exercise leading to an increase worth 168.5 basis points.

Players sought for returns ranging from 7.875% to a high of 8.125%, according to the results of the latest offering.

National Treasurer Rosalia V. De Leon said they went with a full award given a very good volume received during the auction, coupled with an average yield that is even lower than current market rates.

The yield fetched during yesterday’s auction is slightly lower than the 8.044% market rate as of yesterday noon, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates.

The BVAL rate settled at 8.029% yesterday afternoon.

“The market, in terms of the inflation print this morning, more or less they’ve seen that it has stabilized,” Ms. De Leon told reporters after the auction on Tuesday.

October inflation clocked in at 6.7%, matching September’s level to end a nine-month uptrend in prices.

Higher costs of food, housing and utilities, and transport led price increases of basic commodities last month, the Philippine Statistics Authority said. This brought the 10-month tally inflation tally to 5.1%, well above the 2-4% target band set by the central bank.

“It just shows that the momentum of inflation is decelerating, so that is also sending a signal to the market that we would expect that inflation would already trend downwards,” the National Treasurer added.

A bond trader shared this view, saying: “In general, this is a good auction since the yield range is close to what market was expecting. Better month-on-month CPI (consumer price index) data, indicating inflation has peaked, also helped drive market’s risk appetite for the bond.”

Ms. De Leon added that banks may have also seized the opportunity to lock in their funds before yearend, given that this is the Treasury’s last offering for long-term T-bonds for 2018.

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