New 10-year T-bonds fetch lower rates amid strong demand

MANILA, Philippines — Newly issued 10-year Treasury bonds (T-bonds) yesterday fetched lower rates amid market expectations of a lower inflation, as well as the dovish remarks of the US Federal Reserve, the Bureau of the Treasury (BTr) said yesterday.

The securities maturing in 2029 fetched a coupon rate of 6.875 percent, lower than the Bloomberg valuation rate of 6.997 percent for the same securities.

This is likewise lower than the 6.975 percent average rate fetched by the same securities during the previous auction.

Overwhelming demand met the auction as tenders reached P52.989 billion, more than 2.5 times the P20 billion offering.

“For the opening salvo of our T-bonds auction, we are very much pleased with the results and the participation of our government securities eligible dealers,” National Treasurer Rosalia De Leon said.

De Leon said the result of the auction reflects the market’s preference for the long-end of the curve, given the expected decline in domestic inflation.

“The appetite is really toward the long-end this time, coming out again from the significant downtrend of inflation and even the expectations that it will continue to go downhill,” she said.

Inflation eased to a seven-month low of 5.1 percent in December 2018, bringing the 2018 average inflation to 5.2 percent.

Given the lower-than-expected inflation last month, BSP officer-in-charge Diwa Guinigundo earlier said headline inflation may ease back to the two-to-four percent target earlier than expected this year.

Furthermore, De Leon said the increased participation from the market could be attributed to the dovish remarks of US Federal Reserve Chairman Jerome Powell regarding monetary policy tightening in the US.

“We see that hopefully, for the next auctions, it will be replicating this kind of auction outcomes,” De Leon said.

Due to the healthy demand for the securities, the BTr once again opened its tap facility for 10-year T-bonds for a volume of P20 billion.

The tap facility allows the 10 government securities eligible dealers- market makers to access securities after the initial primary auction.