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Manila Bulletin devider Business devider Investor demand for government IOUs declines

Investor demand for government IOUs declines

Published Oct 15, 2024 10:41 pm

By Derco Rosal

Investor demand for the national government’s long-term debt dropped due to reduced chances of the US Federal interest rate cuts, strong job growth, weaker peso, rising inflation, and heightened geopolitical tensions.

On Tuesday, Oct. 15, the Bureau of the Treasury (BTr) successfully raised P15 billion through the auction of reissued seven-year bonds.

Despite relatively low demand, the government successfully raised the planned amount by attracting bids totaling P40.9 billion, more than double the P15 billion offered.

This was lower than the P73.35 billion from the previous auction two months ago and well below the high of P114.90 billion in July 2024.

Demand in the recent auction dropped compared to the previous P73.35 billion from the seven-year T-bond auction two months ago, indicating a decline in investor interest.

The bonds, which have a remaining life of six years and nine months, were awarded at an average rate of 5.690 percent.

Based on the PHP Bloomberg Valuation (BVAL) Service Reference Rate, this average rate is slightly lower than the corresponding corporate bonds in the secondary market, at 5.704 percent.

According to Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), this is higher than the low 5.59 percent recorded on Oct. 1, 2024, but still lower than the 6.96 percent high from April 30, 2024.

Ricafort noted that the interest rate has dropped by 0.44 percent compared to 6.13 percent from the previous auction in August 2024.

This trend can be attributed to the recent events that have influenced the market, including the reduced chances of US interest rate cuts in 2024 due to strong US job growth and faster inflation.

Tensions in the Middle East, especially after Iran's missile attack on Israel, have added to market uncertainty, he also said.

US Treasury yields rose to 4.09 percent as the dollar strengthened to 57.80 against the peso, while the BSP is expected to cut interest rates by 0.25 percent following a drop in inflation to 1.9 percent in September.

Alongside this, US Treasury yields climbed to 4.09 percent, and the peso weakened to 57.80, while the Bangko Sentral ng Pilipinas (BSP) is expected to lower interest rates by 25 basis points after the sharp inflation drop in September.

Related Tags

Treasury bonds T-bonds government borrowings Bureau of the Treasury
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