Gov’t fully awards 7-year bonds on strong demand

THE GOVERNMENT fully awarded the reissued seven-year Treasury bonds (T-bonds) it auctioned off on Wednesday on the back of strong demand after the holidays.

The Bureau of the Treasury (BTr) raised PHP 35 billion as planned from the reissued seven-year papers on Wednesday as the offer was more than twice oversubscribed, with bids reaching PHP 75.196 billion.

The bonds, which have a remaining life of six years and nine months, were awarded at an average rate of 6.796%, 14.7 basis points (bps) lower than the 6.943% quoted for the paper when it was first offered on Oct. 11, 2022. This was also 20.4 bps below the 7% coupon for the issue.

Accepted rates ranged from 6.625% to 6.895%.

However, the average rate for the paper was 3.7 bps above the 6.759% quoted for the same bond series and 4 bps higher that the 6.756% seen for the seven-year tenor at the secondary market before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

To accommodate the strong demand seen for Wednesday’s offer, the Treasury opened its tap facility to raise PHP 5 billion more via the bonds for a yield-to-maturity of 6.796%.

“The Auction Committee decided to fully award the reissued 7-year Treasury Bonds (FXTN 07-68) at today’s auction… The auction was 2.1 times oversubscribed, attracting P75.2 billion in total tenders. With its decision, the committee was able to raise the full program of PHP 35 billion, bringing the total outstanding volume for the series to PHP 59.1 billion,” the BTr said in a statement on Wednesday.

A trader said in a Viber message that the BTr made a full award as it was a “strong auction to start and understandably so, given the absence of supply in past weeks.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the Treasury raised the programmed amount via the seven-year bonds as the average yield of the issue was only marginally higher than the secondary market rate for the tenor.

“Market sentiment was partly supported by the recent easing in US Treasury yields, which declined to new one-week lows lately, also supported by the latest easing in global crude oil prices, again near one-year lows that could help ease inflation pressures,” Mr. Ricafort said.

On Wednesday, the yield on 10-year Treasury notes was down 6.4 bps to 3.728%, while the yield on the 30-year Treasury bond was off 5.6 bps at 3.835%, Reuters reported.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 4.1 bps at 4.364%.

Meanwhile, US crude fell 0.3% to USD 76.70 per barrel and Brent was at USD 81.95, down 0.18% on the day.

The BTr plans to raise PHP 200 billion from the local debt market in January, or PHP 60 billion through Treasury bills and PHP 140 billion from T-bonds.

The government borrows from domestic and external sources to finance its budget deficit, which is expected to reach PHP 1.47 trillion this year or 6.1% of gross domestic product. — A.M.C. Sy