The Bureau of the Treasury (BTr) failed to generate enough interest for its seven-year Treasury bond sale on Tuesday and sold less than half the intended amount of P25 billion, as the market proved restive over whether the US Federal Reserve System would adjust interest rates in December, as some have predicted.
The BTr sold only P11.772 billion as lackluster interest totaled only P22.082 billion, or significantly lower than anticipated demand of at least P25 billion.
Faced with demand more than P22-billion short of target, the auction committee only partially awarded bids totaling only P11.772 billion and rejected P10.310 billion.
National treasurer Roberto B. Tan traced the undersubscription to so-called uncertainties related to the anticipated rate hike the US Fed was seen implementing in December.
“Apparently, there’s heightened uncertainty on the future course of US interest rates particularly, and there is a probability now of an increase or positive US Fed action by December of around a 66 percent to 70 percent probability,” Tan said.
As consequence of the uncertainty on prospective US Fed action, local investors and so-called government securities eligible dealers’ (GSED) increased their bid rates.
“With the uncertainty, of course, a lot of players do not know how to price and, therefore, we’d rather just step aside for the meantime and that is probably the result of the decline of the volume, which is below what had been offered,” Tan explained.
The seven year T-bonds were sold at an average of 3.605 percent. Despite the low amount of tenders, the auction committee pushed through with the award “to maintain a yield curve that leans on the positive side.”
“Well, we just try to maintain a yield curve that is positive. We do not want to go against market trend. But of course, we are conscious about our yield. So we are just following that,” he said.
According to a separate statement issued by the BTr, the bond auction committee decided to partially award the reissued seven-year T-bonds to align with other liquid benchmarks.
Accepted bids ranged from 3.5 percent to 3.650 percent, fetching an average rate of 3.605 percent. This was higher than the original coupon of 3.5 percent set in April and the weighted average rate of 3.186 percent upon last reissuance in August.”
Total outstanding T-bonds currently stand at P86.77 billion.