Gov’t fully awards reissued 10-year bonds

The government made a full award of the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday as its average rate was below the secondary market level after US President Joseph R. Biden, Jr. and House Speaker Kevin McCarthy reached a deal on the debt ceiling.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued 10-year bonds it offered on Tuesday, with total bids reaching PHP 74.843 billion, or nearly thrice the amount on the auction block.

The bonds, which have a remaining life of nine years and three months, were awarded at an average rate of 5.958%, with accepted yields ranging from 5.9% to 5.98%.

The average rate of the reissued bonds was 22.6 basis points (bps) higher than the 5.732% quoted for the papers when they were last offered on May 9.

Still, this was 79.2 bps below the 6.75% coupon for the series.

This was also 1.3 bps lower than the 5.971% quoted for the nine-year bond but 4.3 bps above the 5.915% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded the reissued 10-year Treasury bonds at today’s auction. With a remaining term of 9 years and 3 months, the reissued bonds (FXTN 10-69) fetched an average rate of 5.958% which is below the secondary market benchmark. The auction attracted PHP 74.8 billion in total tenders or three times the PHP 25-billion offer,” the BTr said in a statement.

“With its decision, the Committee raised the full program of PHP 25 billion, bringing the total outstanding volume for the series to PHP 215 billion,” it added.

The T-bond offer was met with strong demand “from investors seeking to lock in favorable rates for a longer period,” a trader said in an e-mail.

The Treasury made a full award of its offer as the bonds’ average rate was below the secondary market level amid lower US Treasury yields recently after a deal to suspend the USD 31.4-trillion debt limit was finalized over the weekend, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

On Tuesday, benchmark 10-year yields dropped 6 bps during Asian trade to 3.7616%, while thirty-year yields fell 6.3 bps to 3.9134%.

A handful of hard-right Republican lawmakers said on Monday they would oppose a deal to raise the United States’ USD 31.4-trillion debt ceiling, in a sign that the bipartisan agreement could face a rocky path through Congress before the US runs out of money next week, Reuters reported.

Although expected, the opposition illustrates the hurdles that Mr. Biden and top congressional Republican Mr. McCarthy will have to overcome to see the Republican-controlled House of Representatives and Democratic-controlled Senate pass the package.

Still, backers predicted it would clear Congress before the United States runs out of money to pay its bills, which the Treasury department says will happen on June 5.

The 99-page bill would suspend the debt limit through Jan. 1, 2025, allowing lawmakers to set aside the politically risky issue until after the November 2024 presidential election. It would also cap some government spending over the next two years.

A crucial first test will come on Tuesday, when the House Rules Committee takes up the bill, in a necessary first step before a vote in the full House. Though the panel is normally closely aligned with House leadership, Mr. McCarthy was forced to include some skeptical conservatives as a price for winning the speaker’s gavel.

Mr. Ricafort added that investors were also waiting for the release of May Philippine inflation data on June 6.

Headline inflation slowed to an eight-month low of 6.6% in April. For the first four months, the consumer price index averaged 7.9%.

The BTr wants to raise PHP 185 billion from the domestic market in June, or PHP 60 billion via Treasury bills and PHP 125 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — By A.M.C. Sy with Reuters