Government fully awards bonds at lower rate ahead of BSP meet

The government made a full award of the reissued seven-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate ahead of the Bangko Sentral ng Pilipinas’ (BSP) policy meeting this week.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued seven-year bonds it offered on Tuesday, with total bids reaching PHP 36.639 billion.

The bonds, which have a remaining life of five years and 11 months, were awarded at an average rate of 6.097%, with accepted yields ranging from 5.975% to 6.15%.

The average rate of the reissued bonds was 7.5 basis points (bps) below the 6.172% quoted for the papers when they were last offered on February 28. It was also 40.3 bps lower than the 6.5% coupon for the series.

However, this was 16 bps higher than the 5.937% quoted for the six-year bond and 27.6 bps above the 5.821% 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 7-year Treasury bonds at today’s auction. With five years and 11 months to maturity, the T-bonds (FXTN 07-67) fetched an average rate of 6.097%, lower than the original coupon rate of 6.5% when it was first issued in May 2022. The auction attracted PHP 36.6 billion in total tenders, 1.5 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 129.7 billion,” it added.

The BTr made a full award of its offer as the T-bonds fetched a lower average rate amid lower inflation expectations, a trader said in an e-mail.

“However, this (the average rate) was relatively higher than secondary market rates amid views of potentially hawkish remarks from the BSP this week,” the trader added.

The BSP is expected to keep benchmark interest rates steady for a second straight meeting on Thursday after inflation eased further last month and the US Federal Reserve likewise paused its tightening cycle last week.

Fifteen economists in a BusinessWorld poll last week all expect the Monetary Board to maintain the overnight repurchase rate at 6.25% during its June 22 meeting.

If realized, this would be the second straight meeting the BSP will leave interest rates untouched. The central bank had raised borrowing costs by 425 bps from May 2022 to March 2023 to help bring elevated inflation down.

The BSP expects inflation to return within its 2-4% target later this year.

Headline inflation slowed to 6.1% in May from 6.6% in April. Still, this marked the 14^th straight month that inflation breached the central bank’s 2-4% target.

For the first five months, inflation averaged 7.5%, well above the central bank’s 5.5% forecast for the year.

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. — A.M.C. Sy