BTr makes full award of reissued bonds on robust investor demand

THE GOVERNMENT fully awarded the reissued 25-year Treasury bonds (T-bonds) it auctioned off on Tuesday amid strong investor demand, which drove the series’ average rate down.

The Bureau of the Treasury (BTr) raised PHP 35 billion as planned from the reissued 25-year papers on Tuesday as the offer was oversubscribed by more than five times, with bids reaching P185.196 billion.

The bonds, which have a remaining life of 12 years and eight months, were awarded at rates ranging from 7.125% to 7.23%, bringing the average to 7.182%, 70.5 basis points (bps) lower than the 7.887% quoted for the series when it was last offered on Oct. 25, 2022 and 81.8 bps below the 8% coupon for the issue.

The average rate was also lower than the 7.2956% quoted for the same bond series at the secondary market but 6.28 bps higher than the 7.1192% yield seen for the 10-year tenor at the secondary market prior to the auction, based on PHP Bloomberg Valuation (BVAL) Service Reference Rates data provided by the BTr.

To accommodate the strong demand for Tuesday’s offer, the BTr opened its tap facility to raise P5 billion more via the same bonds for a yield-to-maturity of 7.182%.

“The Auction Committee decided to fully award the reissued 25-year Treasury Bonds (FXTN 25-07) at today’s auction. With a remaining term of 12 years and 8 months, the security fetched an average rate of 7.182%, lower than the original coupon rate of 8% set on its first issue in September 2010 as well as comparable secondary market benchmarks,” the Treasury said in a statement on Tuesday.

“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 123.4 billion,” it added.

A trader said in a Viber message that the BTr made a full award as the market swamped the bond offering amid “pent-up demand… given last month’s supply shortage and that investors are willing to buy bonds as long as [the yield] is above 7%.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that demand for the bond offer was “unusually high” as investors wanted to lock in higher yields amid expectations of easing inflation at home and in the United States.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to return to its 2-4% target by the second half of this year.

In 2022, headline inflation averaged 5.8%, matching the BSP’s forecast but faster than its 2-4% goal and the 3.9% average posted in 2021.

Meanwhile, data released last week showed wage growth slowed in December 2022, fueling bets that inflation is easing.

Slowing inflation could cause the BSP and the US Federal Reserve to begin considering smaller rate increases this year after raising borrowing costs by 350 bps and 425 bps, respectively, in 2022.

The BTr plans to raise PHP 200 billion from the domestic market in January, or P60 billion through Treasury bills and PHP 140 billion via T-bonds.

The government borrows from domestic and external sources to finance its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy