Ramped-up bid rates prompt partial 3-year bond sale

The Bureau of the Treasury (BTr) loathed seeing the three-year bond rate widen by as much as 26 basis points on Tuesday and sold only a portion of the P20 billion worth of Treasury bonds it originally expected from the various government securities eligible dealers (GSEDs) at the auction.

It wasn’t as if the partial award caught the GSEDs by surprise but National Treasurer Rosalia V. de Leon said such awards often result from attempts at driving the bond rates unreasonably higher when the sovereign’s fundamentals do not warrant such a push.

As a result, the BTr awarded only P14.891 billion at Tuesday’s auction when the GSEDs proved they were looking only on shorter-dated placements.

According to de Leon, there was no sense awarding the entire lot of P20 billion to a market clearly looking to profit from getting high rates from the auction committee.

“There will be a significant increase have we done a full award at this auction, so we went for a partial award,” de Leon told financial reporters.

Had the auction committee relented, the three-year bond rate would have risen to 4.287 percen, from the previous auction’s 4.027 percent, it was noted.

Tenders for the security reached a total of P39.107 billion, but the accepted bids aggregated only P14.891 billion as the auction committee thwarted the other P24.216 billion worth of bids.

As a result, the three-year bond rate now averages only 4.256 percent on a partial award.

According to de Leon, the demand drive for the short tenor securities came from expectations of interest rate hikes by the US Federal Reserve (the Fed,) as well as that expected from the Monetary Board meeting of the Bangko Sentral ng
Pilipinas (BSP) next month.

“First, the expectations on the Fed rates and, of course, they’re watching what would be the BSP action come the Monetary Board meeting this February 8,” de Leon said.

Earlier on January 9, the BTr also thwarted attempts to ramp up bond rates on the back of subscriptions totaling only P18.676 billion against an offer of only P20 billion.

“We had a full rejection for [10-year] bonds” whose bid rates were unreasonably high, de Leon said.

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