Gov’t fully awards reissued bonds

THE GOVERNMENT made a full award of the reissued seven-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate on expectations of easing inflation, which could strengthen the case for steady benchmark borrowing costs in the near term.

The Bureau of the Treasury (BTr) raised P25 billion as planned from the reissued seven-year bonds it offered on Tuesday, with total bids reaching P30.625 billion.

The bonds, which have a remaining life of six years and 11 months, were awarded at an average rate of 5.774%, with accepted yields ranging from 5.648% to 5.85%.

The average rate of the reissued bonds was 23.8 basis points (bps) lower than the 6.012% seen when they were first offered on April 25. This was also 22.6 bps below the 6% coupon for the series.

However, this was 9.3 bps higher than the 5.681% quoted for the seven-year bond and 7.1 bps above the 5.703% seen for the same bond series at the secondary market prior to Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

The BTr made a full award of its offer as “rates are within secondary market levels and are even lower than the average rates at [Monday’s] auction,” National Treasurer Rosalia V. de Leon said in a Viber message to reporters.

“We see rates declining as a result of both the Fitch outlook adjustment to stable and the Monetary Board’s pause on policy rates last week,” Ms. De Leon added.

Fitch Ratings on Monday affirmed the Philippines’ investment grade rating, while revising its outlook to stable from negative, reflecting its confidence in the economy’s continued recovery from the coronavirus pandemic.

The debt watcher kept the Philippines’ long-term foreign currency issuer default rating at “BBB,” which indicates low default risk and adequate capacity to pay.

Meanwhile, a stable outlook indicates that the country’s rating is likely to be maintained over the next 18-24 months.

Fitch downgraded the Philippines’ rating outlook to negative in July 2021 due to the pandemic’s impact on the economy.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) last week paused its tightening cycle and signaled that borrowing costs could remain unchanged at its next two to three meetings.

The Monetary Board on Thursday kept its policy rate unchanged at 6.25%. Interest rates on the overnight deposit and lending facilities were also maintained at 5.75% and 6.75%, respectively.

This is the first time the BSP left rates untouched after nine meetings. Since it began its aggressive monetary tightening cycle in May 2022, the central bank had raised borrowing costs by 425 bps.

BSP Governor Felipe M. Medalla said after the review that they could keep their policy settings steady in the next two to three policy meetings on June 22, Aug. 17 and Sept. 21 if inflation continues to ease as expected.

Investors are looking to lock in “relatively good” rates for long-tenored papers, a trader said in an e-mail.

“However, the relatively lower rate from the previous auction indicated easing inflation expectations,” a trader said.

The BSP last week lowered its average inflation forecast for this year to 5.5% from the 6% it gave in March, still well above its 2-4% target for 2023.

The central bank has said it expects inflation to return within the 2-4% target by the fourth quarter of the year.

Headline inflation slowed to an eight-month low of 6.6% in April. For the first four months, the consumer price index averaged 7.9%.

Tuesday’s auction was the BTr’s last offering of T-bonds for May. It raised the programmed P100 billion for the long-tenored papers as it made full awards at all four auctions this month.

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