Ten-year Treasury bonds the government put out on Tuesday sold the full P15 billion as intended and at the same time proved the critical role played by a market maker, according to the Bureau of the Treasury (BTr).
Officials awarded the entire batch on the back of a more efficient bidding process arising from the support for the proposed enhanced government securities eligible dealer (GSED) program.
According to Deputy Treasurer Erwin D. Sta. Ana, the auction turnout may be traced to the improved bid efficiency of the GSEDs under an enhanced program to be rolled out in the coming months.
“Obviously, we’re getting support from our GSEDs. In terms of bid efficiency, we’re also noticing that bid efficiency is getting better. The spread from the lowest to the highest is narrower and tighter. That’s quite efficient bidding for us,” Sta. Ana said.
The reissued bonds with a remaining life of nine years and seven months attracted bids totaling P26.287 billion that allowed the bidding committee to award the full P15 billion. Treasury officials rejected excess bids totaling another P11.287 billion.
The 10-year rate fell 7.1 basis points at the auction on Tuesday to 4.647 percent, from 4.718 percent at the previous auction.
“Several weeks back, we launched the enhanced GSED program. Although we haven’t really finalized the mechanics, I think the GSEDs are preparing for that already and this turnout actually reflects [their] support,” he added.
According to Sta Ana, the full intent of Treasury officials in pursuing the enhanced program was to introduce two-way quoting in the market.
“We wanted to promote market making so we will be selecting GSEDs that would be our market makers,” he said. The program is scheduled to roll out in a few months and that implementing guidelines are being finalized.
In the securities trade, market makers are financial institutions standing ready to buy or sell the bonds in this case so that those looking to invest in the IOUs know they can go in or out of the market quickly.
The knowledge that one can buy or sell bonds from a market maker for a quick profit reflects the efficiency of that market and the bonds being sold there. This ready liquidity assures bondholders that they can enter the bond market or leave quickly at any time because the market maker is there to facilitate the trade.
“To date, the total outstanding volume for the series is P54.7 billion,” Sta. Ana said.