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Wednesday, December 8, 2010
Morning Brief: 08 December 2010
BTr rejects tenders for 5-yr bonds Investors likely focusing on gov’t bond swap offer By Ronnel Domingo Philippine Daily Inquirer
Had the Treasury awarded fully its T-bonds offer, the interest rate would have jumped to an average of 4.873 percent from a coupon of 4.625 percent. Yesterday’s offer involved a reissue of five-year treasury bonds which were floated last month. Lenders tendered a total of P8.695 billion, which was slightly over the offered volume of P8 billion. The BTr yesterday had the option to limit the increase in yield at 9.6 basis points to an average of 4.271 percent, but this would have trimmed down the amount to be raised to only P425 million. In an interview, Deputy Treasurer Eduardo S. Mendiola said the market was probably focused on the ongoing bond swap offer, through which the BTr would issue new 10-year and 25-year T-bonds in exchange for maturing securities. “It appears that they were not bidding to win,” Mendiola said. “Even the tenders were not in a volume we see regularly during auctions.” Rafael S. Algarra, treasurer of Security Bank Corp., said in a separate interview that yesterday’s bidding results served to show buyers of government securities that the Treasury was not allowing an increase in yield at this time. “We now know that rates won’t be going up,” Algarra said. “The results also showed that the government has enough cash in its hands.” Algarra agreed that the ongoing bond swap offer might have influenced yesterday’s auction. The BTr last week launched this year’s debt exchange program involving at least P60 billion worth of 10-year and 25-year T-bonds, for which lenders have until December 10 to submit their bids. The bond swap for longer-dated debt papers is being made as part of the government’s efforts to extend the maturity of its obligations. In particular, the BTr wants to exchange at least P30 billion worth of new bonds maturing in 2020 and at least P30 billion worth of bonds maturing in 2035 for those that will mature earlier. Mendiola earlier said the government was hoping that as much as P160 billion would actually be exchanged considering the strong market appetite. He said the amount is about a tenth of some P1.6 trillion worth of government securities held by investors eligible for swapping.
According to the Bangko Sentral ng Pilipinas, the gross international reserves rose to $61.3 billion in end-November from the previous record high of $57.15 billion in October. The latest reserves were up 38 percent from only $44.17 billion as of November last year. It was also enough to cover for 10.7 months’ worth of the country’s imports and six times the country’s debts maturing within the short term. In the first trading day of November, the peso broke into the 42-to-a-dollar territory to register its highest level in two-and-a-half years. The appreciation was credited partly to the rise in remittances sent by Filipinos abroad as they sent more money for the coming yearend holidays. It was also attributed to a surge in foreign “hot money” inflows as the bullish outlook on the Philippine and other Asian economies prompted investors to place more funds in emerging countries in the region. While the upward pressure on the peso was fueled by optimism, this has caused discomfort among policymakers who said a currency’s sharp and sudden movement (whether appreciation or depreciation) was disruptive to businesses. The strengthening of the local currency has alarmed some exporters since a sustained rise of the peso could eventually dampen the competitiveness of Philippine-made goods by making these products more expensive. Traders in the foreign exchange market said the BSP had bought more dollars during the month to help ease the appreciation pressures on the peso. Without the central bank’s intervention, they said the peso could have breached the 40:$1 mark. The BSP would not disclose the amount of dollars it had bought from the market. In a statement, BSP Governor Amando Tetangco Jr. said dollars flowing into the country, portions of which were bought by monetary authorities, were due to rising remittances from Filipinos overseas, improved export earnings and a rise in investments by foreigners in the country’s business process outsourcing industry and in portfolio instruments. The BSP said the foreign exchange reserves were also boosted by income from its investments offshore. The central bank’s investments are mostly in US treasuries. The dollar-buying by the BSP is a costly activity and has elicited speculations it would cause the central bank to register a net loss this year. However, the resulting increase in dollar liquidity of the country was hailed by the international financial community, which saw it as improving the credit-worthiness of the Philippines. Standard & Poor’s last month raised the country’s credit-rating from three to two notches below investment grade. It cited the country’s rising GIR, which it said made investors more confident about the Philippines’ ability to pay its dollar-denominated obligations. |
U.S. Stock Rally Wiped Out on Insider-Probe Report, Tax Concerns U.S. stocks erased gains in the final hour of trading, pulling the Standard & Poor’s 500 Index down from a two-year high, after a probe of insider trading reportedly widened and President Barack Obama said he’ll push to overhaul the tax code in two years. 3M Co., JPMorgan Chase & Co. and Hewlett-Packard Co. lost at least 1.5 percent for the biggest declines in the Dow Jones Industrial Average as the 30-stock gauge erased an 89-point rally. Citigroup Inc. gained 3.8 percent after the Treasury sold its remaining stake.New York Times Co. added 4.1 percent after forecasting print-ad revenue improvement. The S&P 500 rose 0.1 percent to 1,223.75 at 4 p.m. in New York after surging 1 percent earlier. The Dow lost 3.03 points, or less than 0.1 percent, to 11,359.16. “It all happened at the same time, taking the market off its highs,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. “Investors got a little spooked during Obama’s press conference,” he said. “Then, we had news that the SEC may widen the insider trading probe. That took some wind out of stocks.” The S&P 500 traded for about 1,233.50 at 2:40 p.m. before falling after Obama said he will fight to let the tax cuts for the wealthiest taxpayers expire in two years. Obama defended the deal he struck with Republicans to temporarily extend Bush-era tax cuts as necessary to spare middle-income Americans a tax increase and to spur job creation.
The price of the 30-year bond fell more than 2 points on concern Obama’s plan also includes a payroll tax cut of 2 percentage points to help support the recovery, potentially widening budget deficits. Today’s $32 billion offering of three- year securities lifted the total amount of notes and bonds auctioned by the Treasury to $2.116 trillion, topping last year’s auction record of $2.109 trillion. “The tax cut package is a game changer,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo & Co. in Milwaukee. “The tax agreement is more pro stimulus and pro growth than anyone expected going into the debate and changes the odds of a double dip. That is not what the Treasury market wants to see.” The benchmark 10-year note yield climbed 20 basis points, or 0.20 percentage point, to 3.14 percent at 5 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 dropped 1 22/32, or $16.88 per $1,000 face amount, to 95 21/32. |
| . Crude Retreats From 26-Month High After Breaching Upper End of OPEC Range Crude oil tumbled from a 26-month high after breaching the upper limit of what Saudi Arabia’s oil minister, Ali Al-Naimi, said is a satisfactory price for consumers and producers. Oil slipped 0.8 percent after surpassing the $70-to-$90-a- barrel range that al-Naimi announced on Nov. 1. The kingdom had previously indicated a preferred target of $75 a barrel. Futures touched $90.76 earlier today following President Barack Obama’s agreement to a two-year extension of tax cuts introduced by President George W. Bush. “The news today has been bullish, but may not be bullish enough to risk being on the wrong side of the Saudis’ $70-to-$90 range,” saidAdam Sieminski, chief energy economist at Deutsche Bank in Washington. Crude oil for January delivery declined 69 cents to settle at $88.69 a barrel on the New York Mercantile Exchange. The $1.38 gain earlier today took prices to the highest level since Oct. 8, 2008. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
Jonathan Ravelas
Chief Market Strategist
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Rhys Cruz
Junior Researcher
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