MANILA, Philippines – The government made yesterday a partial award of three-year Treasury bonds in a bid to cap interest rates seen too high compared with prevailing market rates.
A total P16.22 billion worth of re-issued three-year notes, with a remaining life of two years and seven months, was awarded by the Bureau of the Treasury at the auction yesterday. The paper fetched a rate of 3.169 percent.
Tenders reached P36.17 billion as against the P25 billion offer. Had the government awarded the full amount, it would have paid a higher rate of 3.18 percent. The debt paper charged 3.089 percent during the previous auction.
“We awarded it based on our internal guidelines which put the rate near the upper-end of our guidance. It is a little over our R2 (rate),” National Treasurer Roberto Tan told reporters after the auction.
R2 pertains to the secondary market rates used by investors to trade with each other. The paper fetched 3.1 percent at this market yesterday. Treasury bonds are investment outlets issued by the government in exchange for borrowed money.
Tan said the “uncertainty” coming from the looming interest rate hike of the US Federal Reserve still persists, “although there’s been a change in view” especially after the latter’s meeting last month.
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Investors seeking higher yields have been awaiting the US central bank to raise its rates for the first time since 2006 as the world’s superpower showed some recovery from the global financial crisis.
Higher rates in the US, considered global safe haven, appeal to investors. This, in turn, had triggered capital outflows from emerging markets such as the Philippines.
Sought for comment, a bond trader at a local bank agreed with Tan, adding that concerns over slowing global growth could have affected market sentiment. However, the economic situation on the domestic front remains stable.
“This is not reflective of the status of the Philippine economy since we still have strong growth and benign inflation. We are more of affected by external factors,” a trader said in a phone interview.
Investors, easily affected by perception, usually charge higher interest on papers from countries they deem to have a weak economy or under threat from economic and political developments. Tan said the situation has been “normal” for the country.
“Of course, if the US raise rates, it’s a factor that we have to consider for our funding requirements for next year, together with the political situation,” he said, referring to the upcoming presidential elections next year.
Asked if there is a plan to perform a liability management exercise to lower interest costs and extend debt payment terms, Tan replied: “We are giving ourselves an opportunistic stance. We will monitor the market closely.”
The government borrows from the local and foreign markets to finance its budget deficit and to pay existing debts.
As of August this year however, the deficit— which means more revenues were spent than earned— amounted only to P3.41 billion, far below the P283.7-billion cap for the year. This has allowed the government to borrow much less than required.
