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Liquidity trims 2-year bond yield

Treasury auction swamped by banks

The two-year Treasury bond fetched a lower yield in the latest auction for government securities as substantial liquidity in the domestic market boosted demand for investment outlets.

The interest rate for T-bonds maturing in 2016 settled at 2.727 percent during the auction held Tuesday, declining by 299.4 basis points from the previously recorded rate.

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Awash with cash, banks submitted bids worth P61.285 billion, more than double the P25 billion worth of debt offering set by the Bureau of the Treasury.

The Treasury’s auction committee, however, decided to stick to the borrowing program and accepted only P25 billion worth of bids.

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The latest rate for the two-year bonds, however, was slightly higher than the 2.675 percent registered in the secondary market during trading earlier in the day.

National Treasurer Rosalia de Leon said banks did not want to raise lower bids amid the general trend of rising interest rates and the increasing attractiveness of dollar-denominated assets vis-à-vis emerging-market securities.

The increasing appetite for dollar-denominated securities has come amid tapering by the US Federal Reserve of its stimulus program. The tapering comes with views the US economy is improving.

The Bangko Sentral ng Pilipinas earlier said the scope for keeping its policy rates at historic lows had narrowed. The BSP said it would not hesitate to adjust its policy rates to ensure inflation stays modest despite rising robust growth of the economy.

De Leon said the auction committee found the latest interest rate on the two-year bonds reasonable.

She said that if banks sought for unreasonably higher rates, the Treasury did not need to sell securities given ample cash buffer of the government at the moment.

De Leon said rising revenue collection by the Bureau of Internal Revenue and the Bureau of Customs was helping boost cash buffer of the government.

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“We have the cash readily available for our own use to meet immediate funding requirements of the national government,” she said.

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TAGS: auction, Business, liquidity, treasury bonds
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