Gov’t fully awards PHP30B in fresh 5-year bonds amid high demand

The Bureau of the Treasury fully awarded fresh five-year Treasury bonds (T-bonds) that it auctioned off on Tuesday with a coupon rate higher than secondary market levels amid waning expectations of an earlier rate cut by the US Federal Reserve.

It raised PHP 30 billion from the bonds as total bids reached PHP 74.329 billion, more than twice as much as the program, according to auction results posted by the bureau on its website.

The bonds were awarded at a coupon rate of 6.125%. Accepted yields ranged from 5.86% to 6.125% for an average rate of 6.073%.

The coupon rate was 9.5 basis points (bps) above the 6.03% quoted for the five-year bond on the secondary market before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The higher rates fetched today reflected the impact of stronger US employment reports last Friday,” a trader said in an e-mail. “This economic release has dampened expectations of an earlier policy rate cut by the Federal Reserve.”

The monthly nonfarm payroll report showed the US economy added 216,000 jobs in December, while the jobless rate was steady at 3.7%, Reuters reported.

It was down from expectations from most forecasters for it to rise, prompting concerns that the US Federal Reserve’s battle to tame inflation might get prolonged.

The Fed hiked borrowing costs by 525 bps to 5.25-5.5% from March 2022 to July 2023. The Federal Open Market Committee will hold its first policy meeting this year on Jan. 30-31.

The lower T-bond yield from the last five-year bond offer came amid “unusually strong” demand, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. said in a Viber message.

On Oct. 10, 2023, the Treasury bureau raised PHP 30 billion from reissued 10-year bonds with a remaining life of five years and three months for an average rate of 6.512%.

The coupon rate for Tuesday’s fresh bonds at 6.125% is 38.7 bps lower than the 6.512% fetched for the reissued 10-year bonds sold in October.

The Treasury wants to raise PHP 195 billion from the domestic market this month — PHP 75 billion via Treasury bills and PHP 120 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of the gross domestic product this year. — By Aaron Michael C. Sy, Reporter