Gov’t fully awards T-bond offer amid strong investor demand

THE GOVERNMENT fully awarded the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday as its average rate remained below secondary market levels amid strong demand for higher-yielding longer tenors.

The Bureau of the Treasury (BTr) raised P35 billion as planned from the 10-year bonds it offered on Tuesday as total bids reached P92.254 billion, more than twice the amount on the auction block.

The bonds, which have a remaining life of nine years and six months, were awarded at an average rate of 6.258%, with accepted yields ranging from 6.199% to 6.3%.

The average rate of the issue was 34.50 basis points (bps) higher than the 5.913% quoted for the series when it was last offered on Jan. 24.

However, this was 9.34 bps below the 6.3514% quoted for the 10-year paper and 4.2 bps lower than the 6.3% fetched for the same bond series at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

“The Auction Committee decided to fully award the reissued 10-year Treasury Bonds (FXTN 10-69) at today’s auction. With 9 years and 6 months to maturity, the security fetched an average rate of 6.258%, which is below secondary market benchmark rates,” the BTr said in a statement on Tuesday.

“The auction attracted P92.3 billion in total tenders, reaching 2.6 times the P35-billion offer. With its decision, the committee was able to raise the full program of P35 billion, bringing the total outstanding volume for the series to P115 billion,” it added.

A trader said in a Viber message that the auction results were within market expectations.

“Looks like end-user clients are still inclined to deploy funds in long-end issues as these give enough yield pickup,” the trader added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the T-bonds were awarded at a higher average rate after the government’s recently concluded retail Treasury bond (RTB) offer siphoned off some liquidity from the financial system.

The government raised P283.711 billion from its offering of 5.5-year RTBs that ran from Feb. 7-15.

Of this total, the government raised P31.671 billion from the bond exchange offer program.

The bonds carry a coupon rate of 6.125%.

Mr. Ricafort added that yields rose due to hawkish policy signals from both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

BSP Governor Felipe M. Medalla last week said they could hike borrowing costs by three or four times this year, with a 25-bp or 50-bp increase likely to be delivered at their March 23 review.

This, after the BSP’s policy-setting Monetary Board on Thursday raised benchmark interest rates by 50 bps for a second straight meeting, bringing its policy rate to 6%.

It has now raised borrowing costs by 400 bps since May 2022.

Meanwhile, Cleveland Fed President J. Loretta Mester and St. Louis Fed President James Bullard both said they would back a 50-bp hike in the next Federal Open Market Committee meeting on March 21-22 following stronger-than-expected US consumer inflation in January.

The US central bank this month hiked its fed funds rate by 25 bps to a 4.5%-4.75% range, bringing cumulative increases since March 2022 to 450 bps. Its next policy meeting is on March 21-22.

Tuesday’s T-bond auction was the last offering of government securities for this month.

The BTr borrowed P127.65 billion from the domestic market in February, lower than its P130-billion plan, as it made partial awards of some offerings due to rising rates.

Broken down, it raised P57.65 billion from four offerings of Treasury bills, lower than the P60-billion program, while it borrowed P70 billion as planned via two T-bond auctions.

The government borrows from domestic and external sources to finance its budget deficit, which is capped at P1.47 trillion or 6.1% of gross domestic product this year. — A.M.C. Sy