7-year T-bonds fetch lower rates

MANILA, Philippines — Rates fetched by newly issued seven-year Treasury bonds (T-bonds) declined significantly amid healthy demand from investors, according to the Bureau of the Treasury (BTr).

During yesterday’s auction, the BTr was able to sell P20 billion worth of fresh seven-year T-bonds at a coupon rate of 6.25 percent.

This is 84 basis points lower than the 7.09 percent average rate fetched by the same securities during its last successful issuance on Dec. 11, 2018.

Rates offered by government securities eligible dealers (GSEDs) for the newly issued debt papers also averaged 6.078 percent, 100.3 basis points down from the previous average.

Robust demand met the auction, with total tenders reaching P66.917 billion, more than three times the P20 billion offer size.

According to National Treasurer Rosalia De Leon, there was a huge reduction in the rates for seven-year T-bonds as it has been months since the previous auction for the same securities.

“We are pleased about the results. The 100 basis points reduction, that was because the last auction for the similar tenor was sometime in (December) 2018 so you see the lowering of the rates,” De Leon said.

De Leon said investors also swarmed the auction, reflecting their preference for medium-term tenors amid declining inflationary expectations, and assurances of the Bangko Sentral ng Pilipinas (BSP) that inflation would go back within the two to four percent target. 

“I think there is still preference for the belly of the curve. At the same time they are taking advantage of the rates right now because they see that rates will eventually taper down given that they would expect inflation to really be on a downtrend,” De Leon said.

Due to the healthy demand, the BTr has decided to open the tap facility for seven-year T-bonds with total volume of P10 billion.

The tap facility allows GSEDs to access bonds after the initial primary auction. Access to this facility, however, is limited to the BTr’s top 10 “market makers” as part of their privileges.