December 12, 2017 | MANILA, PHILIPPINES

Treasury partially awards fresh seven-year bonds as rates rise

THE GOVERNMENT partially awarded the fresh seven-year Treasury bonds (T-bonds) it auctioned off yesterday due to higher rates, with the state still having ample liquidity following its recent retail treasury bond (RTB) auction.

At its second auction for the quarter, the government only raised P6.071 billion from its offer of seven-year bonds maturing on April 20, 2024 out of the planned P15-billion fund raising.

This, even as total tenders reached P22.6 billion, exceeding the government’s offer.

The papers were awarded at a coupon rate of 4.5%, lower than the 5.1232% quoted for the seven-year bonds at noon time yesterday before the auction.

At the close of trading at the secondary market, the bonds fetched a rate of 5.1393%.

Bids for the seven-year securities ranged from 4.375% to 4.624% yesterday for an average yield of 4.484%, 87.9 basis points (bps) higher than the 3.605% average fetched for T-bonds of the same tenor awarded at an Oct. 11, 2016 auction. At that auction, the government also partially awarded the re-issued 2023 debt notes with a remaining life of six years and six months.

Asked why authorities decided to partially award the debt papers, National Treasurer Rosalia V. De Leon told reporters after the auction, “After the RTB issuance, there’s a very liquid Treasury so we can sufficiently live with a partial award at this time.” The government raised P175 billion from its public offer of RTBs with a coupon rate of 4.25%, almost six times its initial P30-billion program. The offer ran from March 28 to April 6.

Asked if yields requested by banks were within market expectations, Ms. De Leon said, “In terms of the seven-year [bond], that should have been the rate, so we did not consider the rest [of the] higher yields that were also provided during the auction.”

Sought for comment, a bond trader said in a phone interview that rates bid by banks were aligned with market indications, as prior to the auction, investors were looking at rates between 4.5% and 4.625%.

“The government, however, made a partial award because the Bureau of the Treasury can afford to partially award the bonds after the successful RTB offering. They still have enough liquidity so they can reject some papers,” the trader said.

“They still have enough money to finance government requirements since they will still reissue the seven year T-bonds this coming May and June and there’s a chance to build on the seven-year benchmark security.”

The government plans to borrow up to P180 billion from the domestic market this quarter through offerings of P90-billion worth of both Treasury bills and T-bonds to fund its fiscal deficit. -- J.M.D. Soliman