Gov’t makes full award of 10-year Treasury bonds

The government fully awarded the reissued bonds it offered on Tuesday amid strong demand for the papers and expectations of slower US consumer inflation last month.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued 10-year bonds it offered on Tuesday as total bids reached PHP 96.071 billion, or more than three times the amount on the auction block.

The bonds, which have a remaining life of nine years and 10 months, were awarded at an average rate of 6.227%, with accepted yields ranging from 6.198% to 6.24%.

The average rate of the reissued bonds inched up by 0.9 basis point (bp) from the 6.218% quoted for the papers when they were first offered on Jan. 23.

Still, this was 2.3 bps lower than the 6.25% coupon for the issue, which was also the yield seen for the same bond series at the secondary market on Tuesday before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury. The average yield was likewise 2.6 bps below the 6.253% quoted for the 10-year tenor at the secondary market.

The BTr made a full award of its T-bond offer at a lower average yield as the auction was met with strong demand amid increased liquidity in the market after PHP 700 billion in retail Treasury bonds (RTB) matured, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

One RTB issue matured on March 9 and another on March 12, he said. Both bond series were part of the exchange offer program for the 30^th tranche of RTBs issued last month.

The government raised PHP 584.86 billion from the 30^th RTB issue, with PHP 243.45 billion coming from the bond exchange component.

“The lower T-bond awarded rate today tracked the movement during this week’s Treasury bill (T-bill) auction as market participants continue to anticipate a potential decline in US consumer inflation for February,” a trader said in an e-mail on Tuesday.

On Monday, the government raised PHP 15 billion as planned from its T-bill offer as rates mostly fell, with total bids reaching PHP 50.708 billion or more than thrice the amount on the auction block.

The average rates for the 91- and 364-day T-bills went down by 0.66 bp to 5.772% and 1.3 bps to 6.087%, respectively. Meanwhile, the 182-day paper saw its average yield rise by 2.9 bps to 5.966%.

Meanwhile, the February US consumer price index (CPI) report was set to be released overnight, with expectations for a monthly increase of 0.4% and 3.1% on an annual basis, Reuters reported. Core inflation is seen rising 0.3%, which would nudge the annual pace down to 3.7%.

Markets expect the CPI data to affect the US Federal Reserve’s next policy decision.

Markets are all but certain that the US central bank will not cut rates when it meets next week but have priced in more than a 70% chance of a rate cut in June, CME FedWatch Tool showed.

A stronger majority of economists in the latest Reuters poll also expect the Fed to start cutting rates in June. The survey showed respondents saw it more likely that if Fed policy makers changed their rate projections at the March meeting, the median view would signal fewer cuts this year, not more.

Last week, comments from Fed Chair Jerome H. Powell and European Central Bank policy makers buoyed expectations that rate cuts will begin this summer. Expectations for a cut of at least 25 bps at the June meeting are currently above 70%.

US CPI increased 0.3% in January after gaining 0.2% in December. In the 12 months through January, the CPI increased 3.1% after rising by 3.4% in December.

The Treasury is looking to raise PHP 180 billion from the domestic market this month, or PHP 60 billion from T-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 5.1% of gross domestic product this year. — A.M.C. Sy with Reuters