Gov’t fully awards bond offering

THE GOVERNMENT fully awarded the reissued seven-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate amid strong demand for higher-yielding debt instruments.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued seven-year bonds it offered on Tuesday as total bids reached PHP 46.862 billion.

The bonds, which have a remaining life of six years and six months, were awarded at an average rate of 6.162%, with accepted yields ranging from 6.05% to 6.2%.

The average rate of the seven-year bond was 63.40 basis points (bps) lower than the 6.796% quoted for the same series when it was last offered on January 4 and 83.80 bps below the 7% coupon for the issue.

This was 3.69 bps above the 6.125% seen for the seven-year tenor but 18.10 bps lower than the 6.343% quoted for the same bond series at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee decided to fully award the reissued 7-year Treasury Bonds (FXTN 07-68) at today’s auction. With 6 years and 6 months to maturity, the reissued T-bonds fetched an average rate of 6.162%, lower than the original coupon rate of 7% set on its original issuance in October 2022 and the 6.796% average rate upon its last issuance in January 2023,” the BTr said in a statement on Tuesday.

“The auction was 1.9 times oversubscribed with total tenders reaching PHP 46.9 billion. With its decision, the Committee raised the full program of PHP 25 billion, bringing the total outstanding volume for the series to PHP 86.8 billion,” it added.

The range of accepted rates seen for the bonds was within market expectations, a trader said in a Viber message on Tuesday.

“The recent rate hike pushed the rate demanded by investors closer to the policy rate,” the trader said.

The Bangko Sentral ng Pilipinas (BSP) last week hiked borrowing costs by 25 bps as inflation remains elevated, bringing its key rate to 6.25%.

Since May 2022, the central bank has raised rates by a total of 425 bps.

Headline inflation eased slightly to 8.6% in February from the 14-year high of 8.7% in January.

For the first two months of the year, inflation averaged 8.6%, well above the BSP’s 2-4% target and 6% forecast for the year.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bond rate tracked US Treasury yields.

Benchmark 10-year yields rose to 3.5317%, up from the close of 3.528% on Monday. They are also up from a six-month low of 3.285% reached on Friday, but remain below a 15-year high of 4.338% from Oct. 21, Reuters reported.

Mr. Ricafort added that investors also priced in a possible pause in US Federal Reserve rate hikes.

The Fed last week raised interest rates by 25 bps to the 4.75%-5% range, but said it could consider a pause soon due to turmoil in the US banking system.

The US central bank has raised rates by 475 bps since March 2022.

Tuesday’s auction was the Treasury’s last offering of T-bonds for March.

It raised PHP 125 billion as planned via the long-tenored papers as it made full awards at all five auctions.

With the BTr borrowing PHP 51.7 billion via its Treasury bill auctions versus the PHP 75-billion plan, the government raised a total of PHP 176.7 billion out of its PHP 200-billion program for March.

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