Treasury makes full award of 25-year bonds

Rosalia de Leon

The government on Tuesday made a full award of its re-issued 25-year Treasury bonds (T-bonds), raising P35 billion from the securities, which have a remaining term of 11 years and 11 months and fetched an average rate of 7.189 percent.

The Bureau of the Treasury (BTR) said the average rate was lower than the original coupon rate of 9.250 percent set in November of 2009, as well as the 8.168 percent average when it was reissued last November.

The auction attracted total tenders of P79.4 billion, more than 2.3 times the P35 billion offer, the Treasury said.

National Treasurer Rosalia de Leon told reporters that the full award was brought about by the strong demand despite a significant decline in rates, even as the country’s headline inflation reached 8 percent in November.

The Treasury official also said that the government may prefer longer tenors in the borrowing program in the future if the market pricing is good.

Asked what caused the decline in rates, De Leon said that there were expectations that inflation has peaked and also based on the statement by the Bangko Sentral ng Pilipinas (BSP) on slowing pace of rate hikes

The country’s headline inflation reached 8 percent in November, adding to the likelihood that the BSP’s seven-person policy making body, the Monetary Board (MB), will raise rates during its upcoming meeting this month.

The BSP hiked its overnight reverse repurchase facility by 75 basis points (bps) to 5 percent, effective on Nov. 18.

This was after the country recorded a 14-year high inflation rate of 7.7 percent back in October.

BSP Governor Felipe Medalla said that rate hikes will likely continue until the third quarter or fourth quarter of the year.

Sought for comment, Rizal Commercial Banking Corp chief economist Michael L. Ricafort said in a message sent to the Inquirer that he also sees more rate hikes in the coming months.

“There was never an instance wherein the local policy rate is lower than the Fed Funds Rate, at least over the past 20 years or even before that, in view of the difference in the credit ratings of the United States and the Philippines,” Ricafort said, referring to the BSP’s current rate of 5 percent.

He said the Fed rate, which is now at 4 percent, is expected to go up again to 4.50 percent during its next rate-setting meeting on Dec. 14.

—Alden M. Monzon INQ