Treasury makes full award of T-bonds

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By Karl Angelo N. Vidal, Reporter

THE GOVERNMENT made a full award of reissued seven-year Treasury bonds (T-bond) on offer on Tuesday amid overwhelming demand as investors continued to park their funds in longer-dated securities.

The Bureau of the Treasury (BTr) raised P20 billion as planned from its T-bond offer yesterday after receiving bids totaling P73.685 billion, more than thrice the amount the Treasury wanted to offer.

The seven-year papers, which carry a coupon rate of 6.25%, fetched an average rate of 5.934%, 15.3 basis points lower than the 6.087% fetched when the debt papers were last offered on Feb. 12.

At the secondary market, the seven-year IOUs were quoted at 5.946%, based on the PHP Bloomberg Valuation Service Reference Rates.

After the auction, Deputy Treasurer Erwin D. Sta. Ana said the Treasury saw market preference towards longer tenors.

“Obviously, we see demand from the intermediate to long sections of the curve with this auction and it just shows that there’s still liquidity in the system (given that we saw) more than P73 billion in tenders,” Mr. Sta. Ana told reporters yesterday.

He added that market participants prefer to park their funds on the longer end of the curve, amid decelerating local inflation as well as the dovish stance of the US Federal Reserve (Fed).

On Friday, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the country appears to be “out of the woods” as far as inflation is concerned as he projects price increases to continue to slow this year.

“The downward trajectory will continue in 2019, but in 2020 it will be generally stable at around three percent,” Mr. Guinigundo had said. “It has stabilized, and the negative base effects shall have dissipated by maybe up to the third or fourth quarter of the year.”

The Monetary Board decided to keep the key policy interest rate unchanged at 4.75% on Thursday, remaining at a decade-high, as current settings remain “appropriate” even as inflation has eased further.

The central bank also scaled down its inflation forecast for the year to three percent, well within the 2-4% target band.

“As we have said before, contributors (for the strong demand on longer-dated bonds) would be the inflation path. The BSP has revised its inflation target for the year, and of course the dovish comments from the Fed, so naturally our GSEDs (government security eligible dealers) are behaving this way,” Mr. Sta. Ana said.

Last week, the US central bank said there will be no interest rate hikes this year amid an economic slowdown, a departure from its previous pronouncements that it will raise benchmark rates thrice this year.

Sought for comments, a bond trader said the auction result was well within the market expectation of an average rate of between 5.95% and 6.05%.

“Given the benign inflation and low inflationary expectations, there’s still demand for long tenors,” the trader said in a phone interview.

Meanwhile, DBS Group Research projects state-issued bonds to continue outperforming its Asian counterparts, with 10-year government bonds garnering the highest total return of 9.6%.

“In our view, RPGBs (Philippine government bonds) could continue to shine though the expected drivers of outperformance have likely shifted,” DBS Group Research Duncan Tan said in an e-mail. “New Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno is perceived to be more pro-growth and dovish than his predecessor.”

Apart from the central bank’s easing bias, Mr. Tan added that flows could also support the local bond’s performance.

“Externally, the global economic and monetary environment could be conducive to a pick-up in foreign demand. Against the backdrop of a mild global synchronized slowdown, Philippines’ more domestically-driven and high-growth (6-7%) economy puts it in a favorable light.”

The BTr is looking to borrow P360 billion during the first three months of this year through a mix of Treasury bonds and bills. The state also raised P235.935 billion from the sale of five-year retail Treasury bonds earlier this month, which are meant to support the state’s spending plans for 2019.