Government makes full award of new 10-year Treasury bonds

The government made a full award of the fresh Treasury bonds (T-bonds) it auctioned off on Tuesday on strong market demand, even as the coupon fetched was higher than secondary market levels.

The Bureau of the Treasury (BTr) made a full P30-billion award of the new 10-year bonds it offered on Tuesday as total bids reached P66.824 billion or more than twice the amount on the auction block.

The bonds were awarded at a coupon rate of 6.625%. Accepted yields ranged from 6.4% to 6.625% for an average of 6.558%.

The coupon fetched for the tenor was 4.5 basis points (bps) higher than the 6.58% quoted for the 10-year bond and 8.9 bps above the 6.536% fetched for previously issued 10-year bonds maturing on September 15, 2032 at the secondary market before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded the new 10-year Treasury Bonds at today’s auction, setting the coupon rate at 6.625%,” the BTr said in a statement on Tuesday.

“The auction was 2.2 times oversubscribed as total submitted bids amounted to PHP 66.8 billion. With its decision, the Committee raised the full program of PHP 30 billion,” it added.

The coupon rate fetched for the new T-bonds was higher than secondary market yields for the same tenor due to a weaker peso recently, which could prompt the Bangko Sentral ng Pilipinas (BSP) to match the US Federal Reserve’s latest hike, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The higher T-bond rate tracked the higher expectations on domestic bond yields following the recent weakness of the local currency,” a trader likewise said in an e-mail.

The peso sank to an eight-month low against the greenback on Monday due to broad dollar strength and faster US producer inflation last month.

The local currency closed at PHP 56.78 versus the dollar on Monday, weakening by 46.50 centavos from Friday’s PHP 56.315 finish, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s weakest close in over eight months or since its PHP 56.94-a-dollar finish on Nov. 23, 2022.

Meanwhile, the Fed last month raised borrowing costs by 25 bps, bringing its target interest rate to a range between 5.25% and 5.5%.

The US central bank has now hiked rates by a total of 525 bps since March 2022.

The Fed will hold its next policy review on September 19-20.

For its part, the BSP will hold a policy meeting on Thursday.

A BusinessWorld poll last week showed 13 of 15 analysts see the Monetary Board keeping its key interest rate steady at 6.25% this week.

On the other hand, two economists expect the BSP to hike borrowing costs by 25 bps to mirror the Fed’s latest move.

The Monetary Board kept its key policy rate unchanged at a near 16-year high of 6.25% at its last two meetings after hiking borrowing costs by 425 bps from May 2022 to March 2023 to tame inflation.

The BTr wants to raise PHP 225 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 150 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