Yields slide at P489m bond auction

| Friday March 21, 2014 16:06

 

The auction, held on March 7, was part of the P15 billion Domestic Note Issuance Programme approved by Parliament in February 2011 to help finance the budget as well as maintain government presence in the domestic capital markets.

Figures made available from the auction suggest that the indicative stop-out yield fell across the Treasury Bill and BW011 bond - which were the only two papers on offer - when compared to the December auction with bidders willing to accept higher prices.

The stop-out yield represents the lowest price at which a treasury bill or bond is sold at, or the highest yield the BoB is willing to give auction participants, who are exclusively commercial banks.

At the recent auction, the stop-out yield on the P340 million T-Bill fell to 3.28 percent from 3.38 in December when a similar amount was on offer.  The T-Bill received 20 bids valued at P872 million with only seven successful.  The yield on a September T-Bill was measured at 4.03 percent.

Following the trend, the stop-out yield on the 18-year BW011 bond fell to 6.02 percent from 6.34 in December with 19 bids valued at P291 million for the P150 million on offer. Only eight bids were successful for the bond, which carries a 7.75 percent coupon.

While analysts were unavailable for comment on Wednesday, lower yields for government-backed notes are generally associated with positive investor sentiment, largely around inflation trends and wealth creation.

With its long record of robust sovereign credit ratings and economic stability, government bonds have traditionally been viewed as fail-safe investment vehicles for investors seeking fixed incomes.

By comparison, several European governments have seen their bond yields shoot up, squeezing their treasuries through higher borrowing costs, as a result of investor uncertainty after the global recession.

The latest auction continues the two-year-old trend towards more quarterly offers of notes under the government bond issuance programme.  The central bank has said the move from biannual to quarterly auctions was in order to enhance government’s presence in the market and thus, influence trends.