Government makes full award of Treasury bonds

By Melissa Luz T. Lopez,
Senior Reporter

THE GOVERNMENT made a full award of reissued seven-year Treasury bonds (T-bonds) offered yesterday, with strong demand driving yields lower as market players park their excess funds in the debt papers.

The Bureau of the Treasury raised the entire P15 billion that it wanted to sell yesterday from the auction of reissued T-bonds with a remaining life of six years and seven months.

The offering saw tenders reach nearly triple the offer at P42.364 billion, which in turn drove the average rate to 4.395%, well below the 4.51% fetched when the papers were last offered on Aug. 8 and the original 4.5% coupon quoted when the seven-year notes were first issued back in April. The debt papers will mature on April 20, 2024.

Deputy Treasurer Erwin D. Sta. Ana told reporters after the auction that strong market appetite drove interest rates down.

“The market is still flushed with liquidity. We had some maturity in the past few weeks so maybe it’s repositioning on the part of investors as well,” Mr. Sta. Ana said.

The average rate fetched was also lower than the 4.3802% quoted for the seven-year debt at the secondary market as yesterday noon.

At the close of trading, the yield on the paper went down to 4.3582%.

Sought for comment, a bond trader said ample market liquidity as well as developments offshore spurred investor appetite for local instruments.

“This is just a reflection of sustained demand of investors for peso-denominated investments or assets,” the trader said in a phone interview after the Treasury auction.

“If you look at numbers of the central bank’s interest rate corridor facilities, you can see that we are really flush with liquidity. It’s just waiting to be deployed properly.”

Some P800 billion in cash are held under the weekly term deposit auctions as well as the reverse repurchase and overnight deposit facilities administered by the Bangko Sentral ng Pilipinas, as the monetary authority eyes to mop excess money supply in the financial system to bring market rates closer to its benchmark.

She noted that the faster inflation print at 3.1% in August — which was the highest since April’s 3.4% — may have likely pushed demand for government-issued debt.

Asked whether the decline in fetched yields will likely be sustained, the trader said that interest rates will remain “guided by market conditions,” as she pointed out that local yields likely mirrored the decline in US Treasury rates as well as other global bond yields.

The government plans to borrow as much as P195 billion from the domestic debt market this quarter, more than the P180 billion programmed in the April-June period.

Borrowings fund the country’s budget deficit, which in July stood at P50.5 billion, almost flat from the prior year’s P50.5 billion, as both revenue collections and expenditures increased.

For the first seven months of the year, the government’s fiscal position settled at a P205-billion deficit, higher than the previous year’s gap of P171 billion.

The government has capped this year’s budget deficit at 3% of gross domestic product.