Gov’t fully awards new T-bonds

The government fully awarded the fresh 15-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a coupon rate higher than secondary market levels due to expectations of further monetary tightening by the US Federal Reserve.

The Bureau of the Treasury (BTr) made a full PHP 30-billion award of the new 15-year bonds it offered on Tuesday as total bids reached PHP 47.501 billion.

The bonds were awarded at a coupon rate of 7%. Accepted yields ranged from 6.5% to 7.1% for an average of 6.971%.

The coupon fetched for the tenor was 28.4 basis points (bps) higher than the 6.716% quoted for the 15-year bond and also 25 bps above the 6.75% fetched for previously issued 20-year bonds that will mature on February 22, 2038 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 15-year Treasury Bonds at today’s auction, setting the coupon rate at 7%. The auction was 1.6 times oversubscribed as total submitted bids amounted to PHP 47.5 billion. With its decision, the Committee raised the full program of PHP 30 billion,” the BTr said in a statement on Tuesday.

The coupon rate fetched for the new bonds was still lower than market expectations as investors wanted higher yields, with the Bangko Sentral ng Pilipinas’ (BSP) policy rate still at a near 16-year high and amid expectations of further tightening by the Fed, a trader said by phone.

The bonds fetched rates higher than secondary market levels due to higher US Treasury yields recently amid expectations that the Fed would hike rates again this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

The BSP has held benchmark interest rates steady for two straight meetings since May after it hiked by a cumulative 425 bps from May 2022 to March 2023, bringing its key rate to 6.25%.

The Monetary Board will hold its next review on August 17.

Meanwhile, the US central bank last month paused its tightening cycle after raising rates for 10 straight meetings by a total of 500 bps to a range between 5% and 5.25%.

Fed Chair Jerome H. Powell earlier said the Fed could hike by 25 bps two more times this year as recent economic data support the need for further tightening.

The market expects a rate increase from the Fed as early as its July 25-26 meeting.

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 120 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. — AMCS