6-year T-bonds soar on rate hike expectations

MANILA, Philippines - The yield on six-year Treasury bonds (T-bonds) soared yesterday on expectations that interest rates will go up ahead of the Monetary Board’s policy meeting this week.

During the Bureau of Treasury’s auction, the interest rate averaged  at 3.511 percent, up   51.4 basis points from the average rate of 2.997 percent.

The bonds fetched a high of 3.575 percent and a low of P3.35 percent.

The issue attracted P48.945 billion worth of bids or nearly double the P25 billion on offer.

The government, however, decided to accept only P18.845 billion, citing its ample cash.

“We can afford to reject because we’re sitting on a mountain of cash and this is due to good cash management.  We’re spending less for interest payments,” said National Treasurer Rosalia De Leon.

De Leon said the government is keenly awaiting the outcome of the US Federal Reserve’s meeting and the Bangko Sentral ng Pilipinas’ policy meeting before firming up its borrowing program.

“We haven’t really decided in terms of the tenor and volume.  We need to see first if spending is going to accelerate.  We may reduce depending on the outcome of the meeting.

The government regularly holds auctions of securities to partly meet the country’s expenditure requirements.

The country relied heavily on domestic borrowings last year to capitalize on the local financial system’s strong liquidity and help ward off pressures on the exchange rate.

Foreign borrowing was limited to loans from development institutions such as the Asian Development Bank, the World Bank, and Japan International Cooperation Agency.