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Gov’t makes partial award of T-bonds as rates surge

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BoT treasury
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THE GOVERNMENT accepted P9.74 billion worth of reissued five-year Treasury bonds (T-bond) yesterday amid tepid demand as investors continued to react to the September inflation print.

The Bureau of the Treasury made a partial award of the T-bonds on offer even as total tenders reached P15.73 billion, a tad higher than the P15-billion program

The papers, which have a remaining life of four years and four months, fetched an average yield of 7.342%, surging 144 basis points (bp) from 5.902% tallied in the previous auction last Aug. 14. The papers carry a 5.5% coupon rate.

Prior to the awarding, rates for the five-year bonds at the secondary market were higher at 7.818%.

At the close of trading, the yield on the bonds climbed to 8.0357%.

After the auction, Deputy Treasurer Erwin D. Sta. Ana said the Treasury opted to partially award the bonds as the rates “came in a little higher than what we’ve expected.”

“Although the rates were in the cut-off, that’s within the initial feedback from our [eligible dealers]. So based on our survey, it reflects the rate at which we cut the auction already,” Mr. Sta. Ana told reporters yesterday.

He added that investors opted to hold back their bids, awaiting confirmation that the country’s inflation rate has already peaked in September.

Headline inflation accelerated to a fresh nine-year high of 6.7% last month, faster than the 6.4% tallied in August.

However, the September print was a bit slower than the 6.8% median estimate in a BusinessWorld poll, which matched the Bangko Sentral ng Pilipinas’ (BSP) own projection.

Both the central bank as well as the government’s economic team are of the view that inflation has already peaked and will clock in slower in the last three months of the year.

“Of course, we’re still on a rising rate environment and tendency for market participants is to stay on the sidelines until there’s a better clarity on where we are,” Mr. Sta. Ana said. “That’s probably the reason why the tenders [were tepid].”

Sought for comments, a bond trader said the appetite for the bonds remained weak as market players wait for another round of policy tightening from the BSP as well as the US Federal Reserve.

“Until we see some signs that inflation has already peaked or any other catalysts, then demand will remain tepid,” the trader said in a phone interview.

The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in Treasury bills and another P90 billion in T-bonds.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.

Meanwhile, Mr. Sta. Ana said the government will conduct a non-deal road show in the United States to get the pulse of foreign businessmen.

“We’re still doing a road show…just to update investors where we are,” Mr. Sta. Ana said when sought for an update regarding the government’s planned dollar bond issuance.

“There’s a plan for a road show in the US because these are your major investors, together with the European Union, United Kingdom and Asia.”

The government held an economic briefing in London last Sept. 24-26 to “update” British businessmen on the performance of the economy as well as the Duterte administration’s tax reform and infrastructure initiatives.

In January, the country returned to the global capital markets after four years, offering 10-year global bonds worth $2 billion which carry a 3% coupon.

Aside from this, the government is also looking at issuing yuan- and yen-denominated papers within 12-18 months to maintain presence in the Chinese and Japanese capital markets. — Karl Angelo N. Vidal