Gov’t fully awards reissued seven-year bonds

The government made a full award of the reissued Treasury bonds (T-bonds) it auctioned off on Tuesday as its average rate rose following an increase in US yields as consumer and producer inflation in the world’s largest economy picked up last month.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued seven-year bonds it auctioned off on Tuesday as the offer was oversubscribed, with total bids reaching P46.058 billion.

The bonds, which have a remaining life of six years and nine months, were awarded at an average rate of 6.675%, with accepted yields ranging from 6.5% to 6.74%.

The average rate of the reissued bonds was 30.5 basis points (bps) higher than the 6.37% quoted for the papers when they were last offered on Sept. 12 and 30 bps above the 6.375% coupon for the series.

The average yield was also 13.2 bps above the 6.52% quoted for the five-year paper and 15.5 bps higher than 6.543% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded the reissued seven-year Treasury bonds at today’s auction. With a remaining term of six years and nine months, the reissued bond series 07-70 fetched an average rate of 6.675%,” the BTr said in a statement on Tuesday.

“The auction attracted PHP 46.1 billion in total tenders, 1.5 times the PHp 30-billion offer. With its decision, the Committee raised the full program of PHP 30 billion, bringing the total outstanding volume for the series to PHP 64.7 billion,” it added.

T-bond yields rose following an increase in US rates, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The higher awarded rates reflect the lingering impact of renewed inflation expectations following the uptick in US consumer and producer inflation reports last week,” a trader said in an e-mail.

On Thursday, a US Treasury auction sent bond yields higher while investors were already digesting data that showed consumer prices rose more than anticipated in September, Reuters reported.

The consumer price index rose 0.4% in September, keeping the annual rate at 3.7%, the same as in August, while economists polled by Reuters had forecast it would gain 0.3% on the month and 3.6% year on year.

Data on Wednesday had shown US producer prices increased more than expected in September amid higher costs for energy products and food.

US benchmark 10-year yields rose after the inflation data and climbed further to hit a session high after the auction.

On Tuesday, the benchmark 10-year US Treasury yields edged up to 4.6872%, following a more than 8-basis-point decline on Friday amid demand for the safety of bonds.

Hawkish signals from the Bangko Sentral ng Pilipinas (BSP) continued to push local yields up, Mr. Ricafort added.

The central bank is open to raising its policy rate by 25 bps during their meeting next month after inflation picked up for a second month in a row in September, BSP Governor Eli M. Remolona, Jr. said last week.

Mr. Remolona said he “would not rule out” a 25-bp increase at the Monetary Board’s Nov. 16 meeting, adding there is still room for monetary tightening as the economy remains strong.

The Monetary Board has kept the policy rate at a near 16-year high of 6.25% at its last four meetings. It raised borrowing costs by 425 bps from May 2022 to March 2023 to help bring down inflation.

Headline inflation quickened for a second straight month to 6.1% in September from 5.3% in August. This brought the nine-month inflation average to 6.6%, still higher than the BSP’s 5.8% forecast and 2-4% target for the year.

The BTr wants to raise PHP 150 billion from the domestic market this month or PHP 60 billion via Treasury bills and P90 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 with Reuters