THE GOVERNMENT made a full award of fresh three-year Treasury bonds (T-bonds) it offered on Tuesday as rates declined as investors prefer shorter tenors amid an unstable economic environment.

The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the three-year T-bonds on Tuesday as the offer was almost thrice oversubscribed, with bids amounting to P87.963 billion.

The strong demand prompted the Treasury to open its tap facility to offer another P15 billion in three-year papers. Offers were accepted until 4 p.m. yesterday.

The fresh bond issue fetched a coupon rate of 2.375% and an average rate of 2.279%. The BTr said the coupon was lower than the 4.75% fetched the last time it issued fresh three-year bonds, which was in July 2019.

The Treasury last offered the three-year tenor in January where it partially awarded the reissued T-bonds as rates climbed.

The BTr raised just P16.586 billion via the three-year T-bonds on Jan. 7, failing to fill the P30-billion program even as the tenor attracted bids worth P37.35 billion, as the average rate for the three-year papers jumped 27.2 bps to 4.014%.

Meanwhile, the Treasury on June 9 offered reissued seven-year bonds with a remaining life of two years and 10 months. It borrowed P30 billion as planned as the papers fetched an average rate of 2.558%.

National Treasurer Rosalia V. de Leon said the yield fetched for the three-year bonds on Tuesday fell close to PHP Bloomberg Valuation (BVAL) Service Reference Rates at the secondary market.

“It was a coupon-setting rate since [three-year tenor] was a new bond [offer]. The BVAL for three-year bonds is 2.35%, so it’s within secondary pricing. Three years is a sweet spot with lower duration risk,” Ms. De Leon told reporters in a Viber message after the auction.

She added that they opened the tap facility as there was strong appetite for the three-year tenor.

The three-year T-bonds fetched 2.38% at the secondary market on Tuesday, data from the Philippine Dealing System’s website showed.

Meanwhile, a trader said there was strong demand as investors continue to prefer shorter bond tenors as the coronavirus pandemic clouds the global economic outlook.

“As expected, good volume participation was noted as investors continue to pick bonds at the short end of the curve to put their excess cash to work while waiting for fresh developments surrounding the COVID-19 global pandemic,” the trader said via Viber.

“It was quite expected when it comes to the coupon. This morning, market was expecting bids to range from 2.125% to 2.375%. The auction result was great as both investors and the BTr got what they wanted,” the second trader said via Viber on Tuesday.

The Treasury is looking to raise P160 billion from the domestic market this month: P100 billion via weekly auctions of T-bills and P60 billion via T-bonds to be offered fortnightly.

The government is looking to borrow around P3 trillion this year from local and foreign lenders to help fund its budget deficit expected to hit 9.6% of the country’s gross domestic product. — K.K.T. Jose