Gov’t fully awards reissued three-year T-bonds

The government made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday at a higher average rate ahead of the fourth-quarter and full-year gross domestic product (GDP) growth report.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued three-year bonds it offered on Tuesday as total bids reached PHP 62.434 billion, or more than twice the amount on the auction block.

The bonds, which have a remaining life of two years and 11 months, were awarded at an average rate of 6.007%, with accepted yields ranging from 5.95% to 6.05%.

The average rate of the reissued bonds rose by 10.7 basis points (bps) from the 5.9% quoted for the papers when they were first offered on Jan. 3. It was likewise 0.7 bp above the 6% coupon for the series.

The average yield was 6.9 bps above the 5.938% seen for the same bond series but 0.4 bp lower than the 6.011% quoted for the three-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valu-ation Service Reference Rates data provided by the Treasury.

“The higher rates reflected local optimism ahead of the Philippine GDP report tomorrow,” a trader said in an e-mail on Tuesday.

Economic growth may have slowed in the fourth quarter of 2023, putting the full-year average below the government’s target, analysts said.

Philippine GDP likely expanded by 5.7% in the October-to-December period in 2023, based on a median forecast of 20 economists polled by BusinessWorld, slower than the revised 6% growth in the third quarter and the 7.1% expansion in the same period in 2022.

The same poll showed GDP growth may have averaged 5.5% in 2023, missing the Development Budget Coordination Committee’s 6-7% target.

If realized, the estimate for 2023 would be below the 7.6% expansion in 2022 and the slowest since the 9.5% contraction in 2020.

The Philippine Statistics Authority will release fourth-quarter and full-year 2023 GDP data on Wednesday.

T-bond rates rose in line with secondary market levels amid expectations of policy easing by the US Federal Reserve this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

The US central bank raised borrowing costs by 525 bps from March 2022 to July 2023, bringing the fed funds rate to 5.25-5.5%.

This week, the Federal Open Market Committee is holding its first policy review for this year. Markets widely expect policy makers to keep rates steady for the fourth straight meeting.

The Fed in December surprised the market with its dovish tilt, projecting 75 bps of interest rate cuts in 2024, sparking a blistering year-end risk rally, with traders pricing in easing as early as March, Reuters reported.

But since then, a slate of strong economic data, sticky inflation and pushback from central bankers have led markets to significantly dial back their expectations.

Markets now expect a 47% chance of a Fed rate cut in March, the CME FedWatch tool showed, down from 88% a month earlier. They currently anticipate 134 bps of cuts in the year, compared with 160 bps of easing a month ear-lier.

The BTr plans to raise PHP 210 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 150 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 gross domestic product this year or PHP 1.39 trillion. — A.M.C. Sy with Reuters