The Bureau of the Treasury (BTr) fully awarded bids for the double-tenor treasury bonds auctioned on Tuesday, with significant demand seen particularly for the short-term IOUs.
The government raised P35 billion as programmed, with combined demand for the two tenors reaching P75.32 billion.
The BTr awarded P10 billion for the reissued seven-year bonds with a remaining life of three years and 26 days, as demand rose to P41.48 billion.
Meanwhile, the reissued 25-year paper, with a remaining life of 24.9 years, was fully awarded at P25 billion, with tenders amounting to P33.39 billion.
Huge demand for the shorter tenor prompted the BTr to accept further subscriptions for the three-year bonds, now available through the tap facility window.
Under the tap facility, which has been set from 2:00 to 4:00 pm on the same day, the BTr can accommodate some of the demand for government securities.
The BTr has set a P5 billion program for the current tap facility offer, the results of which are released at the end of the day.
The three-year bonds fetched a rate of 5.779 percent, lower than the Bloomberg Valuation (BVAL) Service rate of 5.8273 percent.
Meanwhile, the average rate for 25-year securities was 6.476 percent, higher than the BVAL rate of 6.306 percent.
“With upside risks to inflation, investors prefer shorter tenors,” Jonathan Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said.
Chelsea Vanessa Lim, fixed income portfolio manager at Sun Life, said the strong appetite for the three-year bonds could be attributed to a limited supply for this tenor and strong expectations of an interest rate cut in April.
“The strong demand translated to more aggressive bids from interested investors,” Lim said.
Investors, she said, remained cautious about adding bonds to the long end of the curve, given the risk of outsized supply in these tenors during the second quarter of the year.
“This translated to weak demand and higher bids in the 25-year auction,” she added.
John Paolo Rivera, Philippine Institute for Development Studies senior research fellow, said the lower rate for the three-year bond market, compared with the BVAL rate, suggests strong investor demand, “likely driven by rate cut expectations; ample liquidity in the market, especially among banks and funds looking for safe, short-term placements, compressing yields; and investors prioritizing shorter-term bonds, which carry less duration risk.”
“In short, shorter bonds are benefiting from strong liquidity and expectations of rate cuts, while longer-term bonds are facing risk premiums due to duration concerns and fiscal outlook uncertainties,” Rivera said.
Michael Ricafort, Rizal Commercial Banking Corp.’s chief economist, said shorter-dated tenors, such as three-year bonds and those at the belly of the yield curve, are more attractive to many investors than the longest tenors, such as the 25-year bonds, due to the higher market risks involved in holding on to a much longer number of years. Yields are similar to or not that far from the shorter-dated tenors.
“Furthermore, some elderly investors may not have the interest to hold on until long-end bonds mature, thereby also entailing some market risks if they sell before the bond’s maturity, especially if market interest rates/yields go up by then,” Ricafort said.
