THE GOVERNMENT made a partial award of fresh 20-year Treasury bonds (T-bonds) it offered yesterday as investors sought higher returns on the back of expected interest rate hikes by the local and US central banks.
At its auction on Tuesday, the Bureau of the Treasury raised just P8.853 billion out of the planned P20-billion borrowing from the fresh bonds maturing on Feb. 22, 2038.
Total tenders reached P22.766 billion, slightly more than the amount the government wanted to raise.
The 20-year bonds fetched a coupon rate of 6.5%, higher than the 5.035% average rate fetched during the last 20-year T-bonds auction in June 2017.
Had the government made a full award of the bonds, yesterday, the rate would have climbed to 7%.
At the secondary market yesterday before the auction, the 20-year papers were quoted at 7.0857%.
It fetched a higher rate of 7.1161% at the close of trading.
National Treasurer Rosalia V. De Leon said after the auction that banks sought higher returns due to the expected rate hikes from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).
“We see the expectations about…the Fed hike, and then domestically, we’re also waiting for the BSP to hike rates… So those were priced in,” Ms. De Leon said on Tuesday.
Market expectations on the Fed rate hike are buzzing ahead of the release of the January monetary policy minutes as jobs and household growth in the world’s largest economy remain solid.
Earlier this month, the Bureau of Labor Statistics reported that there were 200,000 new jobs in January, higher than the 180,000 market consensus.
Housing starts, or new homes to be constructed, rose by 9.7% to a seasonally adjusted annual rate of 1.326 million units last month.
Back home, market players are expecting a rate hike from the BSP as early as next month after the 4% inflation print in January.
For Finance Secretary Carlos G. Dominguez, III, who attended yesterday’s auction, the Treasury only wanted to set a rate for the benchmark papers.
“I think they just want to set the rate because the last time they did [the 20-year bonds] was nine months ago. No need for the money — they just want to set the rates,” Mr. Dominguez said.
Meanwhile, a trader said the market was “surprised” at the result of yesterday’s auction.
“Market was clearly surprised about the decision to award at 6.5% even if it is less than the total offer. This is now causing yields to go higher,” the trader said in a text message, noting that the five-year paper’s rate is now eight basis points up from its Monday close.
The Treasury plans to auction off P120 billion worth of Treasury bills and another P120 billion in T-bonds in the January to March period.
The total amount the government intends to borrow from the local market is higher than the P200 billion it offered in the last quarter of 2017. — K.A.N. Vidal