Gov’t fully awards 10-year T-bonds as rates drop

By Melissa Luz T. Lopez,
Senior Reporter

THE GOVERNMENT raised P15 billion worth of reissued 10-year Treasury bonds (T-bonds) yesterday on the back of strong market demand, which drove yields down despite some cautiousness ahead of a rate-setting meeting in the United States.

The Bureau of the Treasury yesterday made a full award of the reissued debt papers with a remaining life of nine years and seven months.

The offering was met by demand worth P26.287 billion, nearly twice the amount which the Treasury wanted to sell. The bonds were quoted at an average yield of 4.647%, down by 7.1 basis points from the 4.718% rate fetched when the notes were last offered on Aug. 22.

The average yield seen on Tuesday was likewise below the original 4.75% coupon rate attached to the papers which were first issued on May 4.

However, the rate was higher than the 4.585% quoted for the 10-year papers at the secondary market as of yesterday noon.

At the close of trading, the bonds fetched a yield of 4.6199%.

“It’s quite a good turnout for us. We’re getting support from our GSEDs (government securities eligible dealers),” Deputy Treasurer Erwin D. Sta. Ana told reporters after the auction yesterday, pointing out that there was improving bid efficiency with a narrower spread of interest rates sought by the players.

For the 10-year papers, GSEDs asked for yields ranging from 4.528-4.674%, roughly within expectations.

Mr. Sta. Ana attributed the tighter range to the Treasury’s enhanced GSED program, which is seen as a prelude to the government’s two-way quoting mechanism that would assign certain banks as market makers for future auctions.

According to a presentation uploaded on the Treasury’s Web site, market makers are expected to stand as liquidity providers and actively give bid and offer quotes to the regulator, which in turn is expected to “improve the performance” of the primary debt market while enhancing liquidity in the secondary market.

Sought for comment, a bond trader said bids for this week’s auctions came within “expected” levels, with the yields moving higher than market rates reflecting a wait-and-see stance taken by the investors ahead of key economic events that could direct the trajectory of yields.

“It’s more on the Fed this week that’s why market players are cautious. Surprisingly, the bonds were issued maybe because it’s still a comfortable level for the Bureau of the Treasury,” the trader said in a phone interview, although noting that bids received were good enough but not “impressive.”

For his part, Mr. Sta. Ana said the tighter range of tenders bodes well for the government’s reform plans for the local debt market.

“The ultimate objective of the Treasury is to introduce two-way quoting in the market. We wanted to promote market making, so we will be selecting select GSEDs that would be our market makers,” the Deputy Treasurer said. “This program is set to be rolled out in next months. We’re just finalizing the rules of the enhance GSED program.”

Q4 BORROWINGS
Meanwhile, Mr. Sta. Ana said the Treasury is yet to finalize the borrowing plan for the fourth quarter, but that the amount would not depart from current levels.

“We have consulted with the market already but we’re still on the drawing board. We’re not looking to veer away from the previous quarters. But of course, were factoring in where we are in terms of our receipts and disbursements in general,” Mr. Sta. Ana said, noting that the final figure will be revealed next week.

The government is looking to borrow as much as P195 billion from domestic sources this quarter by offering P105 billion worth of T-bills and P90 billion in Treasury bonds, higher than the P180 billion it wanted to raise during the second quarter.

For the entire year, the Treasury is looking to borrow up to P727.64 billion, higher than the P631.294-billion previously programmed to reflect the planned surge in public spending. A fifth of these loans will be sourced abroad, and will finance additional spending plans for infrastructure under the “Build, Build, Build” program of the Duterte administration.

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.