7-year T-bonds plunge to record low of 3.875%

..MANILA, Philippines - Yield of the seven-year Treasury bond (T-bond) plunged to a record low during yesterday’s auction on the back of strong demand. The paper, which will mature on 2019, fetched a coupon rate of 3.875 percent, down from 4.75 percent in its last auction on Aug. 28. Tenders amounted to P35.430 billion, almost four times the P9-billion offer. “There is high liquidity in the market. Investors were also attracted to our strong fundamentals after the successful debt buyback,” National Treasurer Rosalia de Leon told reporters after the auction. A total of $1.5 billion worth of expensive foreign debts were retired earlier than scheduled in a debt buyback which concluded last Saturday. De Leon said the “significant improvement in the government’s finances” have lured investors to yesterday’s offering. Debt watcher Moody’s Investors Service, in a note released on Monday, also hailed exercise as a “reflection of improving government finances.” “The Philippines is exploiting favorable financing conditions to accelerate its ongoing debt liability management program,” it said. The buyback was funded by the $750 million raised through a 10.5-year global peso bond offering earlier this month. “Healthy demand for Philippine government paper reflects improved perceptions of risk, the absence of liquidity pressures, and low inflation,” Moody’s said. There are only three remaining local borrowing auctions this year to be held on Nov. 26, Dec. 4 and Dec. 10. Aside from the regular auction however, the government is set to issue dollar bonds to local investors on Nov. 28. A total of $500-million worth of 10-year dollar bonds will be issued, De Leon said, adding that she hopes to have “a good reception from the issue.” Asked if it could be possible to offer dollar bonds onshore every year, De Leon answered “it could be an alternative source of funding” for the government. Meanwhile, the planned debt exchange— which will see short-term debts swapped with long-term notes— has been pushed back to January, she added. “It will be early next year, around January. I am still looking at the structure (of the issue),” De Leon said, declining to elaborate. Liabilities maturing in one to two years will be exchanged for bonds with terms of seven to 25 years, she said, as part of efforts to free up more resources from interest payments. - By Prinz P. Magtulis