Government fully awards reissued 13-year bonds

THE GOVERNMENT made a full award of the reissued 13-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate amid expectations that the central bank would keep borrowing costs unchanged this week.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued 13-year bonds it offered on Tuesday as total bids reached PHP 68.404 billion, or more than twice the amount on the auction block.

The bonds, which have a remaining life of 12 years and 11 months, were awarded at an average rate of 5.854%, with accepted yields ranging from 5.8% to 5.874%.

The average rate of the reissued bonds was 38.60 basis points (bps) lower than the 6.24% seen when they were first offered on April 18 and 39.60 bps below the 6.25% coupon for the series.

This was likewise 4.6 bps lower than the 5.9% quoted for the 13-year bond and 5.60 bps below the 5.91% seen for the same bond series at the secondary market prior to Wednesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

“The Auction Committee decided to fully award the reissued 13-year Treasury Bonds (FXTN 13-01) at today’s auction. With a remaining term of 12 years and 11 months, the security fetched an average rate of 5.854%, lower than the original coupon rate of 6.25% set on its first issuance last April,” the BTr said in a statement on Tuesday.

“The auction was 2.7 times oversubscribed, with total tenders reaching PHP 68.4 billion. With its decision, the Committee raised the full program of PHP 25 billion, bringing the total outstanding volume for the series to PHP 44.5 billion,” it added.

The T-bonds fetched lower rates to track the decline in secondary market levels amid bets of a pause in the Bangko Sentral ng Pilipinas’ (BSP) tightening cycle, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Investors have started to lock in the still relatively higher long-term PHP BVAL yields amid the recent declining trend,” Mr. Ricafort said.

Strong demand amid excess liquidity in the financial system also caused T-bond rates to go down, he added.

“Today’s auction was completely awarded at lower average rate from initial issuance. This reflects the broader market outlook that local inflation is on its declining trend from January’s peak. Long-term bonds usually mirror future inflation expectations by the market,” a trader said in an e-mail on Tuesday.

The BSP is widely expected to keep its benchmark interest rates unchanged on Thursday amid easing inflation and slowing economic growth.

A BusinessWorld poll last week showed 13 out of 18 analysts see the Monetary Board pausing its rate hike cycle at its May 18 review.

If realized, this would be the first time the BSP will leave interest rates unchanged since it began hiking in May 2022.

Meanwhile, five economists see the central bank raising borrowing costs by 25 basis points (bps) for a third straight meeting and to pause starting from its June 22 review.

The central bank has raised benchmark interest rates by 425 bps since May 2022 to help bring down elevated inflation, bringing its policy rate to a 16-year high of 6.25%.

BSP Governor Felipe M. Medalla on Monday said the central bank may keep rates unchanged at their meeting this week as the country’s consumer price index (CPI) is now lower than the peak logged in January.

“If you’re sure this is a permanent trend, clearly, we must pause. Because there will be no need for another [rate hike],” Mr. Medalla said.

After peaking at 8.7% in January, inflation has since eased to an eight-month low of 6.6% in April.

For the first four months of the year, the CPI averaged 7.9%. This is still above the BSP’s 6% full-year forecast and 2-4% target.

The BSP chief earlier said inflation will likely ease towards 2-4% by the fourth quarter of this year.

The BTr wants to raise PHP 175 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 100 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 AMCS