Gov’t fully awards reissued T-bonds

The government made a full award of the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Wednesday at a lower average rate as the Bangko Sentral ng Pilipinas (BSP) is expected to keep borrowing costs steady for the rest of the year.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned from the reissued 10-year bonds on Wednesday, with total bids for the offer reaching PHP 54.542 billion.

The bonds, which have a remaining life of five years and four months, were awarded at an average rate of 6.22%, with accepted yields ranging from 6.15% to 6.25%.

The average rate of the reissued bonds was 54 basis points (bps) lower than the 6.76% quoted for the papers when they were last offered on July 12, 2022. It was likewise 65.5 bps below the 6.875% coupon for the series.

The average rate was also 3.7 bps lower than the 6.257% quoted for the five-year bond and 3.4 bps below the 6.254% seen for the same bond series at the secondary market before Wednesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded the reissued 10-year Treasury Bonds at today’s auction. With a remaining term of five years and four months, the reissued bonds (FXTN 10-64) fetched an average rate of 6.22%, lower than the original coupon rate of 6.875% set on its original issuance in January 2019 and current secondary market benchmark rates,” the BTr said in a statement on Wednesday.

“The auction attracted PHP 54.5 billion in total tenders, 1.8 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 325 billion,” it added.

The bonds were awarded at a lower average rate amid “expectations of steady BSP policy rates in the near-term,” a trader said in an e-mail.

BSP Governor Eli M. Remolona, Jr. last week said the central bank’s stance remains hawkish, with rate cuts unlikely for the rest of the year, as inflation is still elevated.

The Monetary Board kept benchmark interest rates steady for a third straight meeting this month, but said it is prepared to resume tightening if needed amid risks to inflation.

The BSP this month left its overnight reverse repurchase rate unchanged at a near 16-year high of 6.25%. Interest rates on the overnight deposit and lending facilities were maintained at 5.75% and 6.75%, respectively. 

The central bank raised borrowing costs by 425 bps from May 2022 to March 2023 to tame inflation.

The Monetary Board will hold its next policy meeting on Sept. 21.

T-bond rates also tracked the drop in benchmark US Treasury yields, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

US Treasury yields retreated after a sharp fall in US job openings increased the likelihood of a US Federal Reserve rate hike pause, Reuters reported.

Benchmark 10-year notes last rose 24/32 in price to yield 4.1178%, down from 4.212% late on Monday.

The Fed raised borrowing costs by 25 bps last month, bringing its target rate to a range between 5.25% and 5.5%.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The US central bank will hold its next policy review on Sept. 19-20.

Wednesday’s T-bond offering was the last for the month. The BTr raised PHP 110.235 billion from the long tenors, short of the PHP 150-billion program.

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 with Reuters