10-year T-bond rate dips to record low of 6.25%

The yield from the benchmark 10-year Treasury bonds Tuesday dropped to an all-time low of 6.25% on the back of excess market liquidity and the government’s improving fiscal position. "This is perhaps the lowest rate ever for these long-term instruments. It’s the lowest this year. It’s a continuing improvement over previous auctions. See what a good fiscal position can do?" Finance Undersecretary Gil S. Beltran told reporters after the auction. Premium risk rates of the 10-year debt paper fell to 6.25%, down by 287.5 basis points from a 9.125% coupon rate the government had awarded on Sept. 4. It fetched 8.605% when it was reissued on Sept. 7. Last Aug. 31, the government swapped P58 billion worth of new 10-year benchmark bonds for its maturing obligations. The bond exchange was the second for the year. "We have a lot of savings, particularly from OFW (overseas Filipino workers) remittances. These are flooding the system. But banks are not quick in lending these out, although lending grew by 6.5% in September compared [with] 1% to 2% previously," Mr. Beltran said. Banks bid as much as P12.305 billion. The auction committee sold the P6 billion it had offered. A bond trader said a number of big banks were looking for better yielding instruments after the central bank imposed a de facto interest rate cut by restoring the tiering scheme early this month. "Right now, anything resembling better yields are attractive to them," he added. Another trader said the recent rate dip had been driven by liquidity, adding that it was a good issuance for the government. "It gives the market investment outlets, even though the normal issuance is worth around P8 billion. What’s notable for this auction is the amount of tenders — only P12.305 billion. That’s small for a T-bond auction," he said. He also said expectations of slower inflation, interest rate cuts and a looming credit rating upgrade would continue to fuel the market’s bullish outlook. "There’s a lot of positive news matched with liquidity. I think the medium-term yield will continue to go down further. We don’t see any opportunity for real buyers to buy. If they have so much money, they would be forced to take whatever is in the market," the trader said. — Bernardette S. Sto. Domingo/BusinessWorld