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Gov’t makes full award of bonds as yield drops on strong demand

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THE GOVERNMENT on Tuesday made a full award of its offer of reissued 10-year Treasury bonds (T-bonds) as its yield dropped, with investors continuing to prefer safe-haven securities as the coronavirus pandemic stretches on.

The Bureau of the Treasury (BTr) raised P30 billion as planned via the reissued 10-year papers. Demand for the T-bonds reached P70.45 billion, more than double the offered amount. This brought the outstanding volume for the series to P94.94 billion.

To accommodate the excess demand, the Treasury also opened its tap facility to borrow another P10 billion via the tenor.

Yesterday’s offering was the Treasury’s last regular auction for the year.

The 10-year T-bonds, which have a remaining life of six years and four months and carry a coupon rate of 4.75%, were quoted at an average rate of 2.791% yesterday, declining by 194.1 basis points (bps) from the 4.732% fetched during the previous auction of the series.

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National Treasurer Rosalia V. De Leon told reporters after the auction that investors continue to favor government securities in their search for returns, as seen in the demand logged yesterday.

“We saw big volume tendered and lower bids versus secondary for the security. [We] saw interest shift to belly of curve for yield pickup as GS [government securities] auctions wrapped up for the year,” Ms. De Leon told reporters in a Viber message.

She added that within-target headline inflation prevented yields on government debt from climbing.

Headline inflation stood at 3.3% in November, quicker than the 2.5% in October on the back of an uptick in food prices and energy costs.

Despite this, the year-to-date increase in the consumer price index settled at 2.6%, still within the Bangko Sentral ng Pilipinas’ (BSP) target of 2-4% for 2020.

The central bank expects headline inflation to average at 2.4% this year.

Meanwhile, a trader said investors continue to tread the market cautiously amid uncertainties caused by the pandemic.

“With ample liquidity and with BSP seen to keep its monetary policy settings accommodative, investors continue to place their funds to safer options such as government securities,” the trader said in a Viber message.

The BSP’s policy-setting Monetary Board will hold its last review for the year on Thursday, Dec. 17.

The central bank will likely keep its key policy rates at their current record low levels as it considers the recent uptick in the country’s inflation rate, according to analysts.

A BusinessWorld poll last week showed all 15 analysts do not expect the Monetary Board to go for another rate cut at its seventh and final policy meeting for the year.

The BSP unexpectedly slashed rates by 25 bps last month, citing the need to provide support amid continued uncertainty caused by new virus cases globally and the impact of a recent string of typhoons.

The central bank has lowered policy rates by 200 bps this year.

However, many analysts believe the BSP will resume its easing cycle as early as the first quarter of 2021 to help the economy bounce back as recovery prospects remain dim.

The Treasury wanted to borrow P120 billion from domestic lenders in December: P60 billion in weekly T-bill auctions and P60 billion in fortnightly T-bond offerings. It made full awards of all its offerings even as rates on some papers inched higher.

The government wants to raise around P3 trillion this year from local and foreign lenders to help fund its budget deficit, which is expected to hit 7.6% of the country’s gross domestic product. — LWTN

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