20-yr T-bond rate falls to record low

MANILA, Philippines - The rate for 20-year Treasury bonds (T-bonds) fell to a new record low at yesterday’s auction as liquidity in the banking system resulted in strong demand for government debt instruments.

The yield on 20-year T-bonds settled at a new record low of  3.625 percent, down 212.5 basis points from the previous low of 5.75 percent in September 2012.

Bids for the 20-year T-bonds reached P118.334 billion, more than four times the P25 billion offered by the government.  The auction committee, however, decided to stick to its borrowing plan and accepted only P25 billion worth of bids as planned.

Commenting on the auction results, deputy treasurer Eduardo Mendiola said: “This is definitely record low but its not surprising, rates have been going down. There’s so much liquidity out there, actually running after papers.”

Mendiola said the government is sticking to its borrowing program for the second quarter even as demand continued to be robust. “We’ve already announced our second quarter issuances, and we will stick to that program,” he said.

The strong demand for debt instruments was also attributed to the reduction in frequency of bond auctions conducted by the government.

The government plans to borrow P150 billion from the local debt market in the second quarter, 25 percent more than its program for the first quarter on account of strong liquidity.

The BTR raised its monthly Treasury bill (T-bill) sale to a total of P20 billion from the current auction size of P15 billion.

It also jacked up its monthly Treasury bond offer to P30 billion from P25 billion.

Based on the new borrowing program, the government will auction a total of P60 billion worth of T-bills in the second quarter or P20 billion each on April 3, May 8 and June 5.

The government is also set to auction a total of P90 billion worth of T-bonds on April 25, May 23, and June 20.

The government has been stepping  up borrowings from the domestic market amid record-low interest rates and a surge in capital inflows.