November 25, 2017 | MANILA, PHILIPPINES

Gov’t makes full award of 20-year bonds

THE BUREAU of the Treasury yesterday made a full award of fresh 20-year Treasury bonds (T-bonds), after higher bids sought by investors remained within market expectations, mirroring the market’s appetite for the longer-termed debt notes and as some banks tweaked their positions amid a rising interest rate environment.

At its auction on Tuesday, the government raised P15 billion as planned from the fresh bonds maturing on May 8, 2037 after the papers were oversubscribed nearly two times, with tenders reaching P28.037 billion.

The 20-year bonds fetched a coupon rate of 5.104%, 59.2 basis points (bps) higher than the 4.512% average rate fetched at a Oct. 23, 2013 auction, which was the last time the government offered the tenor.

Still, the yields seen at yesterday’s auction were lower than the 5.4603% quoted for 20-year bonds at noon time before the auction. At the market’s close, the papers fetched a lower rate of 5.4548%.

“Well it’s a healthy turnout... this is the first time we issued a 20-year security since 2013. So despite that this is on the longer sector of the curve, we are actually pleased with the turnout,” Deputy Treasurer Erwin D. Sta. Ana told reporters yesterday after the auction.

He also noted that this signals the market’s appetite for longer-tenored debt papers.

“It means that there’s investor confidence on the republic and that sector of the curve has demand. I think market participants are also waiting for the Treasury to issue on the longer end of the curve,” Mr. Sta. Ana said.

Asked if yields sought by banks were within market expectations, Mr. Sta. Ana said offers were “fairly within the curve, so it tracked where the curve is at right now.”

Sought for comment, a bond trader said in a phone interview on Tuesday that yields requested by investors were well within market expectations, even noting that these were “not surprising.”

“The high of 5.25% was expected as we were betting rates will get at 5.25-5.375%. Tendered volume was nearly two times oversubscribed... This was triggered by some rate positioning, that’s why yields slightly went down,” the trader said.

“With the prospects of rate increases in the US and domestically, we eventually have to increase our rates as well. Other trimmed their positions on bonds. Overall, it’s like yields slightly declined,” the trader added.

Reuters reported that bond traders are expecting a 49% chance the US Federal Reserve to increase borrowing costs at least two times by yearend, citing CME Group’s FedWatch program.

On the local front, the Bangko Sentral ng Pilipinas kept policy rates steady last week on the back of manageable inflation and robust domestic economic activity, but noted that domestic inflation are likely to pick up further in the months ahead.

The government plans to borrow a total of P631.294 billion this year, of which 80%, amounting to P505.035 billion, will be raised from local creditors, while the rest will be sourced offshore at P126.259 billion.

The government is looking to borrow up to P180 billion from domestic sources this quarter through offerings of P90 billion worth apiece of both Treasury bills and T-bonds to fund its fiscal deficit and support a growing economy. It secured P150.602 billion from the sale of government-issued papers during the first quarter, lower than its P180-billion program.