Demand for T-bonds muted ahead of expected US rate hike in June

ILLUSTRATION FROM TREASURY-BONDS-NOTES.COM

MANILA — The Bureau of the Treasury awarded only less than a third of the P15 billion in T-bonds it offered Tuesday on muted demand due to expectations of a US Fed rate hike in June.

The Treasury accepted P4.026 billion as investors tendered a total of P12.851 billion, making the auction undersubscribed.

The re-issued seven-year IOUs maturing on April 20, 2024 were sold at an annual rate of 4.519 percent, up from the coupon rate of 4.5 percent when first issued in April.

“Demand in this particular case is slightly muted because of anticipation of further external developments like the upcoming Fed meeting,” Deputy National Treasurer Erwin D. Sta. Ana told reporters after the auction, as markets bet on an at least 75-percent chance of a rate hike this month.

Last March, the Fed raised the overnight rate by 25 basis points to a target range of 0.75-1 percent—expected to be the first of at least three rate hikes this year, as US President Donald J. Trump’s plan to jack up infrastructure spending while slashing taxes has been seen to hike inflation faster.

“It also goes to show that the demand is still within the shorter end of the curve at this stage because of all these uncertainties,” Sta. Ana added.

Last week, the Treasury sold all P15 billion in T-bills, which have shorter tenor than T-bonds, at rates that fell across the board as the auction was almost four times oversubscribed.

As for domestic developments such as the declaration of martial law in Mindanao last week, Sta. Ana said it had no impact on the government securities market.

“As far as we have observed the market over the past weeks, interestrates are actually sliding down, [they’re on] a downward trajectory. Even during the declaration of martial law last week, we observed that it has continued that path,” according to Sta. Ana.  SFM