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 even as the average rate rose from the previous auction amid dovish signals from the central bank and the peso’s recent weakness.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued three-year bonds it auctioned off on Tuesday as total bids reached PHP 71.399 billion, or more than twice the amount on the auction block.

The bonds, which have a remaining life of two years and seven months, were awarded at an average rate of 6.347%. Accepted yields were 6.3% to 6.375%.

The average rate of the reissued bonds rose by 34 basis points (bps) from the 6.007% fetched for the series’ last award on Jan. 30. This was also 34.7 bps above the 6% coupon for the series.

Still, this was 3.8 bps lower than 6.385% quoted for the three-year bond and 2.6 bps below 6.373% 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 BTr made a full award of its T-bond offer as the average rate was “lower than the prevailing secondary market rates,” it said in a statement.

“With its decision, the committee raised the full program of P30 billion, bringing the total outstanding volume for the series to P90 billion,” the Treasury said.

The T-bonds fetched rates lower than secondary market levels amid dovish signals from the Bangko Sentral ng Pilipinas (BSP), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. this month said the Monetary Board may kick off its easing cycle by the second semester, with a 25-bp cut possible as early as their Aug. 15 meeting and one or two rate cuts expected this year.

This would mean that they could ease ahead of the US Federal Reserve, which they expect to begin cutting rates by September, Mr. Remolona said.

The Monetary Board this month kept its policy rate at a 17-year high of 6.5% for a fifth straight meeting following cumulative hikes worth 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Meanwhile, Finance Secretary and Monetary Board member Ralph G. Recto on Monday said they may cut benchmark interest rates by 150 bps in the next two years.

“The awarded rate today reflected investors’ demand for higher fixed returns emanating from the recent weakness of the local currency,” a trader added in an e-mail on Tuesday.

The peso closed at the P58-per-dollar level for the first time in over 18 months last week amid the greenback’s strength as US Federal Reserve kept their “higher for longer” policy stance following recent data showing that inflation remained sticky and a robust economy.

On Monday, the local unit ended at P58.11 versus the greenback, strengthening by eight centavos from its P58.19 finish on Friday. This was down by P2.74 from the peso’s end-2023 close of P55.37.

Tuesday’s T-bond auction was the last for the month. The BTr raised PHP 121.721 billion via T-bonds out of the PHP 150-billion program for May as made partial awards of three out of its five offerings this month.

Overall, the Treasury raised a total of PHP 183.721 billion out of its PHP 210-billion domestic borrowing program for May.

For June, the BTr is looking to borrow a total of PHP 180 billion from the domestic market, or PHP 60 billion from Treasury bills and PHP 120 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of gross domestic product for 2024. — A.M.C. Sy