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Nov-04-2009US to Sell $81 Billion in Long-Term Debt Next Week(topic overview)
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The rate for the 25-year Treasury bonds was last quoted at 9.75 percent in the secondary market rate. The government was forced to resort to more borrowings this year after it raised its budget deficit ceiling to P250 billion from the previous P199.2 billion on greater public spending to prop up the domestic economy amid a global slowdown. It entered the international capital markets through two global bond issuances worth about $2 billion. It is also planning to undertake a Samurai bond offering before the yearends. The Department of Finance earlier said it might push back the plan to tap the Japanese bond market this year if the two governments '''failed to fill in the gap.''' [1] The Treasury earlier rejected bids for the 10-year Treasury bonds in an auction on Oct. 20, after market players were seen throwing less aggressive bids and asking for an unacceptable premium. It also rejected on Oct. 7 all the bids for the re-issued seven-year Treasury bonds, which would have fetched an unacceptably high interest rate beyond the secondary market rate. The government successfully raised $1 billion in 25-year global bonds last month, representing the third international global bond issue for the Philippines this year and the first 25-year bond offer since January 2007.[2]
The advisory committee, made up of top executives at large banks that serve as primary government bond dealers, said in a report to Treasury that TIPS issuance should increase to $70-$80 billion in fiscal 2010 from $58 billion in 2009. "In the medium term, the committee felt the market could support increases in both auction sizes and frequency, growing gross TIPS issuance to $100-$130 per annum," the panel said. The Treasury also said it expected to reach its $12.1 trillion statutory debt ceiling in mid-to late December, a change from its previous estimate of late Novembner.[3] Treasury expects debt limit will be hit in Dec. WASHINGTON — The Treasury Department now expects to hit the government's debt limit in December, two months later than its initial estimate, after scaling back an emergency loan program as the financial crisis abated. Treasury Department officials said Wednesday they're working closely with Congress to pass the legislation needed to boost the debt ceiling, currently at $12.1 trillion, and avoid an unprecedented default on the nation's debt obligations.[4] WASHINGTON — The United States is poised to hit the debt limit in December and Congress will need to raise the ceiling to keep the federal government functioning, the Treasury Department said Wednesday.[5]
The highest bid was 9.250 percent while the lowest was 8.750 percent. The auction panel of the Bureau of the Treasury stuck to its programmed P6.5 billion borrowing for this week. Tan said most of these insurance firms and pension funds such as the Social Security System and Government Service Insurance System are matching their liabilities by investing in the 25-year sovereign debts. [6] The government secured cheaper borrowings Tuesday as it sold 25-year treasury bonds with a coupon rate of 9.250 percent, 70 basis points lower than the 9.950 percent fetched by the same long-dated debt paper in the secondary market.[6] The government has raised fresh funds from the sale of 25-year Treasury bonds on Tuesday on the back of the institutional investors''' demand for the long-term debt papers.[1] Analysts said demand for long-term debt papers and high market liquidity led to the successful sale of the 25-year Treasury bonds, following two failed auctions of debt paper with shorter tenors last month.[2]
The Treasury said it expected to borrow a net $276 billion through sales of marketable debt in the fourth quarter, about $209 billion less than it previously forecast for the period. This was largely due to the wind-down of a Treasury program to finance Federal Reserve liquidity actions, a move taken in part to avoid breaching the $12.1 trillion statutory limit on Treasury debt. "It's more of a one-time factor than a sustainable improvement in the borrowing outlook. The next quarter, it's going to go back up," said Kim Rupert, head of fixed income strategy at Action Economics LLC in San Francisco.[7] For the budget year that ended on Sept. 30, the federal deficit hit an all-time high in dollar terms of $1.42 trillion. As a percent of the total economy, it stood at its highest level since the end of World War II. The jump reflected the massive spending from the $700 billion financial bailout fund and the $787 billion economic stimulus package designed to get the country out of the longest recession since the 1930s. "Deficits of this size are serious and ultimately unsustainable," White House budget director Peter Orszag said in a speech Tuesday. The deficits are making it harder for the administration to extend politically popular stimulus programs, such as support for the unemployed and the tax credit for first-time homebuyers, without greatly increasing the size of future deficits. In its announcement Wednesday, Treasury said it decided to move to 30-year inflation protected securities, known as TIPS, because it believe the longer maturity would be more popular with investors.[4] In the latest dealer questionnaire the Treasury asked about potential changes to the TIPS program including the replacement of the 20-year TIPS with a new 30-year TIPS security.'' Bond giant PIMCO, in the meantime, has introduced its own new anti-inflation fund, which it says is composed of a mix of TIPS and municipal bonds. John Cummings, who will manage the fund, offers some insight into the reasoning behind its creation. With growing U.S. deficit projections and continued economic uncertainty, investors are facing the potential for higher taxes, elevated financial risks and the need to protect the purchasing power of their investments against inflation over time.''[8] Treasury also offers TIPS in five- and 10-year maturities. The value earned by an investor on a TIPS bond fluctuates with changes in the consumer price index, giving investors protection that the value of their bonds will not drop if inflation accelerates. Treasury also announced that it will raise $81 billion in its quarterly refunding operations next week including $40 billion in three-year notes to be auctioned on Monday, $25 billion in 10-year notes to be auctioned on Tuesday and $16 billion in 30-year bonds to be auctioned on Thursday.[4] WASHINGTON -- The U.S. Treasury plans to sell $81 billion in new securities next week to refund $38.5 billion in maturing issues and raise about $42.5 billion in new cash. The Treasury on Wednesday also announced that it will stop issuing 20-year inflation protected securities immediately, replacing them with 30-year TIPS. The Treasury plans to hold its first auction of reopened 30-year TIPS Feb. 22.[9] The offering is expected to help refund approximately $38.5 bln in privately held securities and to raise approximately $42.5 bln. In another move announced today, Treasury replaced its 20-year TIPS offering with 30-year TIPS in an effort to "improve liquidity in the TIPS program, extend the average maturity of the portfolio and better capture the premium associated with inflation protection."[10]
Washington, Nov 04 2009 (IFR) - The Treasury Department announced today that it would auction a record $81 bln in new securities as well as alter its issuance calendar to discontinue the 20-year TIPS and reintroduce the 30-year TIPS in its place.[10]
A new report from the International Labor Organization showed that wage growth''continued to''decline around the world in 2008, falling to 1.4 percent last year from 4.3 percent in 2007. The UN group also''suggested things have gotten worse this year. The picture on wages is likely to get worse in 2009 ''' despite the beginning of a possible economic recovery. '' Compared to the annual average of 2008, the real wages in the first quarter''of 2009 fell in more than half''of the 35 countries for which recent data is available. '' The downward trend in wages raises some questions about the extent to which the consumption of workers and their families will be able to sustain aggregate demand for economic production once the effects of government rescue packages peter out. This trend has not, however, succeeded in calming those spooked by unprecedented monetary and fiscal stimulus from governments and central banks around the world. Inflation-hedging is creating market niches all of its own. The Treasury, for instance, is expected to bring back''30-year Treasury Inflation Protected Securities, or TIPS, as part of its quarterly refunding announcement on Wednesday.[8] Treasury announced that it's tweaking its TIPs program so investors can get inflation protection for 30 years rather than 20 years. It will certainly make break-even calculations much easier since the government doesn't sell regular run-of-the-mill Treasurys with 20-year maturities.[11] A Treasury official said the 30-year TIPS would better match up with the existing 30-year note and offer more inflation protection to potential investors.[3]
The 30-year TIPS would be better aligned with the benchmark 30-year Treasury bond. The Treasury has also said it is committed to boosting liquidity in the TIPS market after expanding much of its borrowing in recent years with shorter-dated normal bills and notes.[7] WASHINGTON, Nov 3 (Reuters) - Despite a temporary pullback in year-end borrowing, the U.S. Treasury on Wednesday is expected to announce a $3 billion increase in 3-, 10- and 30-year debt sales to a record $80 billion and take some cautious steps towards lengthening its debt maturities. A number of analysts predict that the Treasury will introduce 30-year Treasury inflation-indexed notes, or TIPS, to replace the current 20-year TIPS. Treasury officials recently reiterated that they are considering such a move.[7] WASHINGTON (Reuters) - The U.S. Treasury on Wednesday announced a record $81 billion quarterly debt refunding and will replace its 20-year inflation-indexed note with a 30-year version as it seeks to lengthen maturities.[3]
The Treasury said next week it will sell $40 billion of 3-year notes, $25 billion of 10-year notes and $16 billion of 30-year bonds, a total of $6 billion more than it announced at the last refunding in August.[3] Analysts largely expect the Treasury to announce on Wednesday that it will hold auctions next week of $40 billion for 3-year notes, $24 billion for 10 year notes and $16 billion for 30-year bonds.[7]
The government yesterday sold 25-year Treasury bonds for the first time in nearly two years, raising P6.5 billion from an auction that was more than twice oversubscribed.[2] MANILA, Philippines - The government successfully sold P6.5 billion worth of 25-year Treasury bonds as long-term investors swamped yesterday's auction.[12]
With that outlook, borrowing needs are going to be very high and there is a massive amount of debt that needs to be sold just to roll over what's maturing," Rupert said. "It's pretty precarious actually." The Treasury's borrowing advisory committee, made up of its 18 primary bond dealers, also is expected to provide updated estimates on Wednesday of fiscal 2010 deficits and net debt issuance, which it pegged in August at $1 trillion to $1.6 trillion. [7] The Treasury said that net debt issuance will remain high in fiscal 2010 at $1.5 trillion to $2 trillion as it tackles cumulative deficits of $3.5 trillion over the next three fiescal years.[3]
Congress still faces the need to boost the debt limit by around $1 trillion. Some senators have said they will not support that action unless it is linked to the creation of a commission that would force Congress and the administration to take credible action to restrain soaring deficits. The administration has said the current record deficits are needed to get the country out of a deep recession and stabilize the financial system, but that the President Barack Obama will put forward new proposals to trim future deficits when he sends his next budget to Congress in February.[4] The legislation to increase the debt limit is expected to trigger a congressional debate over the government's soaring deficits, which are projected to add another $9 trillion to the debt burden over the next decade.[4]
In February, Congress raised the debt limit to 12.104 trillion dollars as the government launched a 787-billion-dollar stimulus program to help pull the economy out of recession that began in December 2007.[5]
The government initially estimated the debt ceiling would be hit last month, but in September it reduced one of the many emergency borrowing programs to $15 billion, from $200 billion. That cleared more room for the government's other borrowing needs.[4] Based on current projections, Treasury is now expecting to reach the debt ceiling in mid- to late- December. That's an extension from the mid October date predicted in August, due to Treasury's wind-down of its Supplementary Financing Program (SFP).[10] "Based on current projections, Treasury expects to reach the debt ceiling in mid to late December," the department said in a quarterly report on refinancing the federal government's debt.[5] "Treasury is working with Congress to pass legislation to increase the debt ceiling," it said.[5]
The national debt ceiling authorized by Congress is 12.104 trillion dollars, more than 80 percent of 2008 U.S. economic output.[5]
The interest rates that the government securities fetched on Tuesday were still above the 8.5 percent when there were last auctioned off in 2007, '''but that'''s not relevant anymore. Those were the most liquid time,''' Tan said. During the auction, the government fully awarded to bidders the P6.5-billion worth of debt papers that fetched an average rate of 9.080 percent, or 17 basis points lower than its coupon rate of 9.250 percent.[1] The debt paper fetched a coupon rate of 9.250 percent which National Treasurer Roberto Tan described as much better than comparable rates in the secondary market.[12]
A Samurai bond is a yen-denominated debt paper issued in Japan by a foreign borrower. Borrowing from the Japanese through the sale of bonds in their market surged during that country'''s so-called lost decade, when the world'''s second-biggest economy fell into deflation, characterized by ultra-low interest rates and a flood of money that had nowhere else to go.[1] The 25-year bonds, introduced in the Philippines in 1999, have the longest maturity period among the debt papers in the domestic debt market.[2]
Finance Secretary Margarito Teves had said that the government would have to postpone the Samurai bond offering to next year if Manila and the Japan Bank for International Cooperation would be unable to agree on the guarantee fee the bank would charge. The Philippines is looking to raise $2 billion in foreign bond issues next year to help finance its budget deficit. [1] In September alone, the deficit hit P27.5 billion or 27.2 percent more than the P21.6-billion deficit incurred in the same month last year. Tan maintained that the government remains hopeful of meeting its P250-billion budget deficit target for the year. View previous articles from this author.[12]
Debt buyers had sought higher premium amid concerns on the government'''s widening budget deficit.[6]
The Treasury could expand its TIPS offerings and or bring back the 30-Year TIPS to help finance the federal debt needs.'' [8] "Market participants have communicated to Treasury that more frequent auctions would help improve liquidity in the TIPS market. Given Treasury's commitment to this program, and our plan to gradually increase TIPS issuance, we are considering making further changes to the TIPS auction calendar," the Treasury said in a statement.[3] The Treasury said it was considering more frequent auctions of its Treasury Inflation-Protected Securities after its borrowing advisory committee recommended additional TIPS issuance.[3]
Market participants have communicated that more frequent auctions would help improve liquidity in the TIPS market, a request Treasury said is "under consideration."[10]
The Treasury will launch semi-annual auctions for the 30-year TIPS, last issued in 2001, on Feb. 22, 2010, followed by a reopening auction in August.[3]
The sales -- $1 billion higher for each maturity compared to the July-September quarter -- will refund about $38 billion of Treasury securities maturing on Nov. 15 and raise $42 billion in new cash. [7] Treasury also announced it is ending sales of 20-year inflation-protected securities and will offer similar 30-year securities starting next year.[4]
The coupon rate, however, was higher than 8.5 percent that the 25-year Treasury bonds fetched on Nov. 27, 2007 when it was last sold. [2] Bids ranged from 8.75 percent to 9.25 percent, with an average of 9.08 percent, which the Treasury said was aligned with the rates in the secondary market.[2] Tan said the 9.250 percent yield was lower than the benchmark Philippine Dealing System Treasury Fixing rate of 9.950 percent for 25-year notes.[12] National Treasurer Roberto Tan welcomed the better rate, which is comparable to the benchmark Philippine Dealing System Treasury Fixing (PDSTF) rate of 9.950 percent for 25-year maturities.[6]
National Treasurer Roberto Tan said the auction was '''very good''' as there were '''lots of demand from insurance firms and pension institutions for long-term money.''' [1] There's a lot of demand from insurance firms and pension funds," Tan told reporters after the auction.[12]
The auction received total bids of P14.495 billion for the P6.5 billion notes on sale. [2] Bids ranged from a low of 8.75 percent to a high of 9.25 percent, with the demand reaching P14.495 billion, or twice higher than the total on offer.[1] Investors tendered a total of P14.495 billion, more than double the P6.5 billion offer size.[12] The auction was swamped with buyers as tenders reached P14.495 billion, more than double the P6.5 billion offer.[6]
The auctions will refund about $38.5 billion of privately held securities maturing or called on Nov. 15 and raise about $42.5 billion in new cash. [3] The PDSTF rate is the pricing benchmark for secondary-market trading of domestic securities. "It's a very good auction.[12]
The 2034 notes were sold at a coupon rate of 9.25 percent a year, lower than 9.5 percent fetched in the secondary market as of 4 p.m. yesterday. [2] In the first nine months of the year, the deficit widened to P237.5 billion, a sharp 345 percent increase from the P53.4 billion deficit incurred in the same period last year.[6]
November's offering will be comprised of a 3-year note in the amount of $40 bln, a 10-year note in the amount of $25 bln and a 30-year bond in the amount of $16 bln. [10] The program, established to fund the Fed's various liquidity facilities, is being drawn down from $200 bln to $15 bln as announced in mid September.[10]
National debt has ballooned as the government borrows money to fund massive stimulus and bailout measures to support the recession-stricken economy.[5] "Treasury debt managers will continue to remain aggressive in managing finanncing needs while minimizing mpotential maarket implications," the committee said.[3] According to minutes of the Treasury Borrowing Advisory Committee, Treasury officials said bill issuance may marginally decline while shorter dated coupons stabilize at current levels.[3]
Investors had been cautious the past weeks, prompting the government's auction committee to reject bids for 10-year T-bonds last Oct. 20. [12] Tuesday'''s auction was a reversal from government'''s rejection of bids for 10-year T-bonds on October 20.[6]
Tan welcomed the improvement in investors' appetite as seen during yesterday's auction. "I find this a good auction," he said. [12]
SOURCES
1. Govt raises funds from sale of long-term IOUs
2. Manila Standard Today -- Govt sells P6.5b of 25-year bonds --
3. US Treasury resumes 30-year TIPS in record refunding - Forbes.com
4. The Associated Press: Treasury expects debt limit will be hit in Dec.
5. AFP: US set to hit national debt limit in December
6. Business Insight Malaya | Business
7. PREVIEW-U.S. Treasury on track for record debt refunding | Reuters
8. MacroScope » Blog Archive » Inflation Fears, Sputtering Wages | Blogs |
9. Treasury to Sell $81 Billion in Securities - WSJ.com
10. Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
11. Commentaries » Blog Archive » Now you can get inflation protection for the (super) long haul | Blogs |
12. Government sells P6.5 billion worth of 25-year Treasury-bonds | The Philippine Star >> News >> Business
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