3-year treasury bond fetches higher rate

MANILA, Philippines - The three-year Treasury bond fetched a higher rate Tuesday, tracking secondary market rates and spurred by inflation fears. The debt paper fetched an average of 6.436%, 104 basis points higher than the 5.389% it fetched last January 15. The government awarded P4.505 billion out of a P7 billion original offer after banks demanded higher rates. Acting National Treasurer Roberto B. Tan said the Treasury partially awarded the debt instrument to keep the market moving. "Were just supplying liquidity...But the partial award follows the secondary rates, which are a little bit higher. This is very reflective of market sentiment," he said. "Inflation expectations is the main driver right now. And of course the policy response of central bank." The three-year paper was oversubscribed, with tenders reaching P10.135 billion against the original offer. It would have fetched an average of 6.457%, as high as 6.500 or as low as 6.395 had the government awarded it in full. Secondary market rate for the three-year debt instrument is 6.9106%. Mr. Tan said that at the moment, the government is still in a comfortable cash position, so it need not increase borrowings this month. "We are still on track." A bond trader in Manila said that aside from inflation worries, the market is also testing the government’s will to keep interest rates low. "While the market is risk averse, it is also trying to see if the government is determined in keeping its interest rates low. If its cash position is healthy, it can always afford to reject," the trader said. - C. S. S. Valencia/BusinessWorld