5-year Treasury bond rate rises to 10.63%

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Posted: 2:07 AM | Jun. 21, 2006
Michelle V. Remo
Inquirer

THE interest rate on five-year Treasury bonds jumped to 10.625 percent at Tuesday's auction, from 8.5 percent recorded at the last auction on March 7, following a rate uptrend in offshore markets.

"Rates are high all over. We cannot be exempted," National Treasurer Omar Cruz said in a press briefing after the auction.

Cruz said the increase in the rates was acceptable, given the big volume of bids.

He said the Bureau of Treasury's auction committee was not inclined to control the movement of interest rates, and that the bureau would allow a rise in rates if coupled with increased demand.

"We do not want to issue [securities] in a market that does not want to buy," he said. "But in this case, you can see that there are tenders."

The offering was for P3.5 billion worth of bonds. Tenders totaled P14.186 billion.

The auction committee accepted P3.5 billion worth of bids.

Cruz said five-year T-bonds were trading at 10.5-10.625 percent on the secondary market, which he said was the auction committee's basis for accepting the rate of 10.625 percent for the new bonds.

He said investors might have been pricing in a likely increase in the US interest rate in their bids.

The US Federal Reserve is expected to make another quarter-point interest rate hike when it meets this month, after Fed Chairman Ben Bernanke said the US central bank would take a tough stand against inflation.

The Fed has been increasing its policy rate since June 2004 to the present level of 5.00 percent.

The rise in US interest rates has been affecting capital markets worldwide, as narrowing rate differentials with US rates make government bonds of other countries less attractive to investors who require higher credit risk premiums.

Cruz meanwhile said the Bureau of Treasury would announce possible changes in its third-quarter domestic borrowing program.

Revisions would take into consideration market appetite in terms of volume of government securities and tenors, he said.

Originally, the bureau programmed P104.5 billion worth of domestic borrowings for this year, consisting of P46.0 billion through T-bills and P58.5 billion through T-bonds. With INQ7.net