Gov’t fully awards T-bonds amid strong demand

THE GOVERNMENT fully awarded the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate as investors expect inflation to ease towards the end of the year.

The Bureau of the Treasury (BTr) raised the programmed PHP 35 billion from the reissued 10-year papers on Tuesday as bids for the offering reached PHP 93.696 billion.

The bonds, which have a remaining life of nine years and seven months, were awarded at an average rate of 5.913%, with accepted yields ranging from 5.749% to 5.99%.

The average rate of the tenor was 79 basis points (bps) lower than the 6.703% quoted for the series when the issue was first offered on Sept. 13, 2022. It was also 83.7 bps below the 6.75% coupon for the issue.

It was likewise 22.6 bps lower than the 6.139% seen for the same bond series and 23.1 bps below the 6.144% quoted for the 10-year paper 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 7 months to maturity, the security fetched an average rate of 5.913%, lower than the previous 10-year auction rate as well as the secondary market benchmark,” the BTr said in a statement on Tuesday.

“The auction attracted P93.7 billion in total tenders, reaching 2.7 times the P35.0 billion offer. With its decision, the committee was able to raise the full program of P35.0 billion, bringing the total outstanding volume for the series to P80.0 billion,” it added.

A trader said in a Viber message that the BTr made a full award of its offer amid strong demand as “investors try to lock in rates in anticipation of aggressive drop in inflation.”

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla on Monday said they expect headline inflation to be below 4% by the third quarter of this year and below 2% by early 2024.

Inflation accelerated to 8.1% in December from 8% in November and 3.1% in December 2021 amid soaring food prices. This brought average inflation in 2022 to 5.8%, the highest in 14 years and well above the BSP’s 2-4% target.    

The Monetary Board raised borrowing costs by a total of 350 bps in 2022 to tame inflation and support the peso, bringing the policy rate to a 14-year high of 5.5%.   

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the average rate quoted for the issue tracked the decline in secondary market yields.

“Relatively large demand or bids for the National Government bond sales over the past two weeks also led to the lower auction yields,” Mr. Ricafort added.

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

The BTr borrowed PHP 212.4 billion from the domestic market in January, higher than its PHP 200-billion plan.

Broken down, it raised PHP 58.4 billion through Treasury bills out of the programmed PHP 60 billion and PHP 154 billion via T-bonds, higher than the planned PHP 140 billion as it opened its tap facility several times to accommodate strong demand for higher-yielding long tenors.

The government borrows from domestic and external sources to finance its budget deficit, which is capped at 6.1% of gross domestic product for this year. — Aaron Michael C. Sy