Gov’t makes partial award of 10-year bonds as rates climb

THE GOVERNMENT partially awarded the Treasury bonds (T-bonds) it offered on Tuesday as yields bid by banks were above its benchmarks and as it maintains a healthy cash position.

The Bureau of the Treasury made a partial award of the reissued 10-year debt papers with a remaining life of nine years and six months, selling just P10.21 billion of the securities even as demand exceeded the government’s offer.

It offered P20 billion worth of the securities, while bids by banks totalled P32.599 billion.

The T-bonds were awarded for an average rate of 4.915%, up by 26.8 basis points from the 4.647% rate fetched when the bonds were last offered on Sept. 19.

At noon or before Tuesday’s auction, the yield on the 10-year bonds was at 5.3082% in the secondary market.

At trading’s close, the 10-year paper fetched a rate of 5.3282%.

National Treasurer Rosalia V. De Leon said the Treasury bureau had to reject bids demanding higher returns.

“We aligned the offering with the R1 from the 15 billion that transacted this morning [because] otherwise it’s really a very significant increase, not only from the last auction, but also from where we are with the R1 and R2,” Ms. De Leon said on Tuesday. The R1 benchmark or reference rate is calculated from the weighted average yields of done transactions at the secondary market by noon, while R2 is from done transactions at the market’s close.

“I guess we’re saying we have healthy cash buffer that would allow us to meet our requirements until the end of the year. The [P10-billion award] is something that is adequate for us.”

“Even with the 3.5% print of inflation, I don’t think that should be a cause for a significant increase in the offer rates [yesterday],” Ms. De Leon said.

Inflation picked up further in October to hit the fastest pace in nearly three years. Prices of widely used goods and services increased by 3.5% from a year ago, inching up from the 3.4% climb logged in September and rising from a 2.3% annualized pace in October 2016.

Both the monthly reading and the 10-month average of 3.2% fall within the 2-4% target range set by the central bank for the entire year.

“With [the economic] team saying inflation is already near peak, expect GS (government security) yields to start tracking US Treasuries again. US Treasuries are now trading below past month’s high,” a trader said, noting the partial award was expected.

PANDA BONDS
Meanwhile, Ms. De Leon said the government is still looking to issue its planned yuan-denominated or panda bonds within this quarter, as it earlier targeted, even with some requirements for the offer still pending.

“We have to go through very rigid process so until now, there are still some things they (China) are asking from us, some submissions they need from us, so we continue to supply that information,” she said.

“We’ll see [if the November target is doable] because we have to make sure that there’s a compelling reason for us to issue in the panda market given the rates right now,” Ms. De Leon added.

In September, economic managers headed by Finance Secretary Carlos G. Dominguez went to China to conduct a road show for the planned panda bond offer.