Wednesday, December 3, 2008

bonding time

Government sells 20-year bonds at 9.5%; awards P4.918
by Jun Vallecera / Reporter
Tuesday, 02 December 2008 21:12

THE government has sold 20-year money at 9.5-percent yield during the auction of Treasury bonds on Tuesday, up 87.5 basis points from 15 months ago, Treasury chief Roberto Tan told reporters after the sale.

Fifteen months ago the coupon rate on 20-year Treasury bonds was 8.599 percent, data from the Bureau of Treasury showed.

The increase burdens taxpayers with additional interest expense of P43.03 million a year for the next 20 years for this account alone, for a total of P860 million.

Tan picked the bond yield the market was willing to give government on Tuesday. He earlier said the national coffers contain sufficient hoard of cash.

“We may have reached our reflection point wherein investors think interest rates are getting better,” he told reporters.

Insurance companies and pension funds that match long-term funding needs with the government’s long-term borrowings bought the bulk of the P4.918 billion worth of T-bonds the government awarded yesterday.

The bureau sold only a part of the P6 billion worth of 20-year bonds it offered the market on account of the high yield rates bidders wanted for their money.

Still, Tan believes long-term rates have improved. “A lot of long-term investors are locking-in at the good rates at this time.”

He said the long-term outlook was helped by the favorable trend of inflation, which slowed to 11.2 percent in October from a 17-year high of 12.5 percent in August.

Government planners earlier projected inflation would range from 9 percent to 11 percent this year, compared with the original target of 3 percent to 5 percent before the mid-year spikes in oil and food prices.

“It looks like the outlook on inflation has cleared already,” Tan said.

“Investors are flushed with cash so they’re buying,” Tan said. Interest rates investors would like to get “are very acceptable already based on our long-term outlook.”

The intent, Tan said, was to lock investments while the rates favor investors.

At the same time, the market is also flushed with cash that investors are placing their money now while the rates are good, he added.

The bureau last sold 20-year bonds on September 4, 2007 at an average rate of 8.599 percent.

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