Yield on 5-yr Treasury bonds jumps

The rate for the reissued five-year Treasury bonds offered Tuesday jumped to 3.977 percent amid uncertainty in global markets, but the government is still looking to push through with the planned offshore bond sale early next year.

The Bureau of the Treasury awarded all P25 billion in T-bonds maturing on Aug. 20, 2022, despite the average rate increasing by 127.9 basis points from 2.698 percent previously.

The auction was oversubscribed as tenders reached P26.128 billion.

 Higher rate trend

“We got a fairly healthy volume of bids considering market conditions. We find that the bids are somewhat spread evenly. And based on behavior of trading during the past two weeks, there’s already a trend towards higher rates and we found this to be acceptable given the pattern of trading where there’s a direction towards higher yields because of the developments, particularly in the US,” Tan explained to reporters after the auction.

Tan was referring to prevailing uncertainty as markets anticipate how US President-elect Donald Trump’s protectionist stance would affect market conditions and expectations.

 Fed decision

As for the program to borrow at least $500 million through an offshore bond sale next year, Tan said “it has always been our tradition” to do so at the start of the year, “but, of course, we will assess the market once a Fed decision is made in December and how the market will take it and how conditions will be after the Fed decision.”

Markets are betting on a US Federal Reserve rate hike next month, after Chair Janet Yellen last week said it would be done “relatively soon.”

 President’s approval

Tan said in a text message over the weekend that the planned commercial foreign borrowing was “still being processed in the Bangko Sentral ng Pilipinas.”

A foray into the global bond market will entail approval of the President as well as the BSP’s Monetary Board.

Right time

“We will continue to monitor the market and assess whether it’s the right time—in the past, almost always we hold it either in the first or second month; it’s only this year that we held it in the second month,” Tan said.

The government slightly delayed to February this year’s offshore bond sale amid global market volatility late last year.

Tan said they prefer to sell long-term, at least 10-year, bonds.

He added that they were also considering a liability management exercise next year. “We always consider liability management as a package with the new money, so hopefully there’s an opportunity for both transactions to be launched back-to-back. Right now, we really have to find out first how market reaction would be after the Fed [move] and how the market behavior is turning out after that,” he said.