Back-to-back offers mark end of government local financing this year

MANILA, Philippines - The government is ending its local fund raising this year with a back-to-back bond issuance in a bid to lock in better terms ahead of the expected rate hike from the US Federal Reserve next month.

 

In an announcement on its website, the Bureau of the Treasury said the offering of four-year Treasury bond to investors "will be moved" to December 6 from December 13.

 

This, in effect, will come a day after the agency floats three tenors of shorter-termed Treasury bills. Normally, the government only issues one debt paper every two weeks.

 

"December 13 is the date of the most-awaited Fed meeting," National Treasurer Roberto Tan said in a text message on Tuesday.

 

"We think that participating government security dealers and other market participants would be distracted and unfocused in their submissions so we moved the T-bond auction," he said.

 

US Fed chair Janet Yellen is seen to lead the policy-making Federal Open Market Committee (FOMC) in raising rates, exactly a year after the US delivered its first hike in nine years.

 

FOMC will meet from December 13 to 14 to set policy. The T-bond auction will be the last domestic borrowing for 2016. 

 

Over the weekend, Finance Undersecretary and chief economist Gil Beltran said the era of low interest rates are bound to end soon as many expect to follow US lead in lifting them.

 

Low rates allow the government to use more funds for public projects and programs than to settle debts.

 

Sought for comment, Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said despite the early issue, government securities are still likely to fetch higher rates.

 

"They will very likely be much higher than the last auction. It may be good timing though as market rates have declined from last week's level," Neri said in an e-mail.

 

Tan declined to comment on how he expects rates to move.

 

Andre Ibarra III, senior vice president for Treasury at Security Bank Corp., said demand for both issuances will still be healthy even if investors "have already priced in" a Fed hike.

 

"The papers cater to different clients. Yes, this is the first time that we would see a back-to-back issuance since normally we have one or two-week gap, but I don't see it as a problem," Ibarra said separately.

 

During the last T-bill auction on November 14, rates rose across-the-board led by the 58.8-basis-point rise on 364-day paper, which also garnered less tenders than the offer.

 

Yields on  benchmark 91-day T-bill and its 182-day counterpart also both increased 20.3 and 30.4 basis points, respectively.

 

Last week, re-issued five-year T-bonds were awarded in full, but not without the government agreeing to pay a rate of 3.977 percent, up from 2.698 percent previously.

 

"There is adequate liquidity for now, but clearly much more expensive prior to (Donald) Trump's win of US elections," Neri said.