Government makes partial award of 5-year T-bonds

MANILA, Philippines - The government borrowed less than programmed yesterday as it capped interest rates demanded by investors on a re-issued five-year Treasury bonds.

A total P9.732 billion worth of five-year T-bonds was awarded at the auction yesterday, lower than the P25-billion program by the Bureau of Treasury. The debt paper has a remaining life of four years and 10 months.

The paper fetched a rate of 3.8 percent, up from 3.352 percent when the debt instrument was last offered. Had the Treasury made a full award, the rate would have gone up to 3.852 percent.

“Clearly, this is the market direction already as we approach the upcoming Fed meeting in December,” National Treasurer Roberto Tan told reporters when asked about his comments on the interest rates.

The Treasury, he said, made a partial award to allow for a “gradual adjustment” of the rates in the coming auctions should the US Federal Reserve undertake its first rate hike since 2006 next month as anticipated.

If the government yet again decided to reject the bids yesterday, Tan said the “gap” between the rates now and next month “could shoot up” which would also not be good for state borrowing plans.

“But this should also serve as a signal that the government is in a good cash position,” he added.

On a testimony before US Congress last week, Fed Chairman Janet Yellen said a rate adjustment from near-zero levels next month is a “live possibility.” She issued the statement before a report that showed US unemployment rate dropped to five percent last month.

With jobs being generated amid a US recovery, investors have been flocking to the US, the world’s safe haven, for better returns. This, in effect, has left emerging markets like the Philippines with tumbling financial markets.

For the bond market, a bond trader at the local bank agreed with Tan that the Fed would have influenced market sentiments. She added though investors would have been “cautious” ahead of a long holiday next week.

“There’s the APEC summit next week and a lot of investors would have wanted to stay liquid so if you want to be liquid, you will be cautious on placing your money somewhere,” the trader said in a phone interview.

On the Fed, Tan and the trader both said financial volatilities are likely to persist until the Fed finally raises rates.

“It will continue until something happens,” the trader said.