2-year T-bond rate rises

The two-year Treasury bond fetched yesterday a coupon rate of 10.75 percent, up by more than one percentage point from its last auction on May 4. Indicating strong market appetite, total tenders reached P5.675 billion against a P4.5-billion offering.

The auction committee awarded P4.315-billion worth of bids. "The rates were already there as early as June. There are also the expectations that the inflation rate was moving up, so we decided to just align it at the secondary market," Deputy Treasurer Eduardo S. Mendiola said.

At the secondary market, the two-year paper was at 10.5982 percent, down from 10.61 percent the other day.

Inflation in August was at 6.3 percent largely due to rising oil prices.

The rise in consumer prices further unsettled an already jittery market. "The inflation is really high when you subtract it from the 91-day Treasury bill [rate]. The rate for the [three-month paper] should be at 8.5 percent, but it’s still at [7.985 percent], so we’re still asking cheap. We were expecting only around 10.5 percent to 10.625 percent for the two-year debt instrument," a trader said.

With the Bureau of the Treasury’s acceptance of the high rate, another trader said the market "was under the impression that the government is in dire need of money. The secondary market was only moving sideways. Basing from their reaction at the auction, will they really accept higher rates from now on?" Also yesterday, the government finally confirmed that it would issue up to $750-million worth of global bonds to fund the balance requirement of debt-saddled National Power Corp. Finance Undersecretary Eric Recto told reporters after the regular auction that they were still discussing their options for the bond float. He sat down at the auction as an observer.

This also came a day after the Treasury cut down the size of its weekly bond offerings for the fourth quarter of the year to P4-B from P4.5-B. "That has been programmed already and that always happens.

Hopefully, this will stabilize the market. Alam na nila iyan (They are aware of that). There’s no surprise," Mr. Mendiola said.