T-bond rates down on strong demand

MANILA, Philippines — Reissued five-year Treasury bonds (T-bonds) fetched lower rates as investors swarmed yesterday’s auction amid strong liquidity in the financial system.

The Bureau of the Treasury (BTr) yesterday fully awarded P30 billion worth of securities with a remaining life span of four years and eight months at an average rate of 2.536 percent, 36.4 basis point lower than the 2.9 percent fetched by the same tenor in its previous auction on Nov. 17 last year.

This was, however, also 4.1 basis points higher  compared to the secondary market rate for five-year securities, which settled at 2.495 percent in the previous auction.

Strong demand met the P30 billion offering, with total tenders amounting to P98.67 billion.

Sought for comment, a bond trader said  interest rates have settled lower-than-expected despite an uptick in inflation last December.

“The auction was lower than expected at 2.536 average rate because of abundant liquidity among banks despite the higher-than- expected inflation rate at 3.5 percent,” the trader said.

The trader also said the low interest rate environment may likely continue as the central bank has assured that the increase in inflation was only transitory.

Last December, inflation further accelerated to 3.5 from 3.3 percent in November, driven by higher food prices and transportation costs. This brought the full-year average inflation to 2.6 percent in 2020.

Meanwhile, National Treasurer Rosalia de Leon said there was “strong buying interest” for the five-year securities as reflected by the three times oversubscription in the auction.

De Leon said the demand for the belly of the curve was driven by ample liquidity, coupled with cautious sentiment from investors amid the coronavirus pandemic.

Given the high participation from investors, the Treasury decided to open the tap facility for the debt papers to raise an additional P20 billion in funds.

This year, the government is programmed to borrow P3.03 trillion from domestic and external sources to bridge the deficit in its budget, which is expected to widen to 8.9 percent of the gross domestic product (GDP).

For January, alone, the BTr is targeting to raise P140 billion from domestic borrowings.