Treasury sells P30-B bonds

The Bureau of the Treasury on Tuesday sold all P15 billion in reissued seven-year bonds and took advantage of the robust demand by offering another P15 billion through its so-called tap facility.

The Treasury fully awarded the IOUs with a remaining life of six years and four months at 6.974 percent, a lower rate than when the same government securities were last reissued in September at 7.085 percent.

The auction was oversubscribed by more than four times as investors tendered P62.2 billion.

To date, the outstanding amount for this debt paper was already P41.2 billion.

This was the first of two bond auctions that were advanced by the Treasury by a week earlier than originally scheduled.

“We are pleasantly surprised, even if we advanced, we are seeing there’s a lot of demand now. And the preference was going into the intermediate—[investors] are going longer because they want to lock in the rates right now due to the expectation that rates will be further falling already given that inflation is expected to trend downwards on lower oil prices and the peso is appreciating. So they better lock in already on the long end of the curve,” National Treasurer Rosalia V. de Leon told reporters after the auction.

After the Treasury sold P15 billion in reissued five-year bonds over the counter last week, they will again open the tap facility for the same volume of seven-year bonds to the 10 “market makers” among government securities eligible dealers (GSEDs).

Unlike in regular auctions where interest rates on short-term bills and long-term bonds are determined by bids offered by banks, the rates on debt instruments sold over-the-counter are set by the Treasury. The rates are based on secondary market yields.

The over-the-counter facility is usually tapped when the Treasury decides to sell more securities to meet excess demand. The facility also allows the government to raise additional funds when money generated from regular auctions falls below targets.