Positive investor sentiment after SONA: Rate drops on 7-year T-bonds

MANILA, Philippines – Positive investor sentiment from President Duterte’s first State of the Nation Address (SONA) helped push down rates on seven-year Treasury bonds.

The re-issued paper, which has a remaining life of six years and nine months, fetched a rate of 3.016 percent at  yesterday’s auction, down 44.5 basis points from the previous auction.

A total of P44.73 billion in tenders were received, nearly double the P25-billion offered. The government awarded as planned.

“This is, of course, a very good turnout especially with the SONA just happening yesterday,” National Treasurer Roberto Tan told reporters after the auction.

“The market is very much pleased with the policy pronouncements of the President which would be, of course, business friendly and market-oriented policy friendly for the country,” he added.

During his 98-minute speech opening the 17th Congress, Duterte asked legislators to pass reforms on income taxes, grant him emergency powers to tackle Metro Manila’s traffic and extend passport’s validity to 10 years, among others.

He also reiterated his anti-crime and anti-drug stance, while vowing to continue and “make even better” current macroeconomic policies in place.

Tan said the economy – which grew 6.9 percent in the first quarter – continued to be strong, helping lower interest rates on financing requirements.

With the US Federal Reserve delaying rate hikes and slower growth in Europe and other developed markets, Tan expects rates to remain low “at least probably until the later part of the year.”

“Domestically the macro-economic fundamentals are very sound, the liquidity of the market is still quite deep and these are all helping on the sentiment for investors to be very aggressive,” he said.

A bond trader at a local bank agreed with Tan when sought for comment yesterday.

“The results of the auction is in line with expectations and the high peso liquidity as well as end-user requirements,” she said in a phone interview.

“That said, Philippine fundamentals remain solid in terms of domestic inflation and growth prospects,” she added.

For the next six months, Tan said the Bureau of the Treasury is preparing recommendations to the Department of Finance on how to proceed with its borrowings.

Finance Secretary Carlos Dominguez earlier said he would keep this year’s borrowing program, which totaled P674.80 billion in borrowings, according to the 2016 budget.

Broken down, P104.58 billion would be sourced externally, while P570.23 billion will come from the local market. It was not clear how much of that had already been issued.

This, even as higher borrowings are expected next year given plans to widen the budget deficit to three percent of economic output from 0.9 percent last year.

Tan earlier said there will be no pre-funding of borrowing requirements for 2017 this year.