Economy 4 MIN READ

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

May 3, 2023By BusinessWorld

THE GOVERNMENT fully awarded the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Wednesday as rates were lower than secondary market levels.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued 10-year bonds it offered on Wednesday as total bids reached PHP 61.793 billion, or more than twice the amount on the auction block.

The bonds, which have a remaining life of five years and eight months, were awarded at an average rate of 5.925%, with accepted yields ranging from 5.85% to 5.974%.

The average rate of the issue was 13.40 basis points (bps) higher than the 5.791% quoted for the series when it was last offered on Aug. 9.

Still, this was 95 bps below the 6.875% coupon for the issue set when it was first issued in January 2019.

This was likewise 6 bps lower than the 5.985% quoted for the six-year bond and 7.3 bps than the 6.025% seen for the same bond series at the secondary market prior to Wednesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded the reissued 10-year Treasury Bonds at today’s auction. With a remaining term of 5 years and 8 months, the reissued bonds (FXTN 10-64) fetched an average rate of 5.925%, lower than the original coupon rate of 6.875% set on its first issuance in January 2019 and current secondary market benchmark rates,” the BTr said in a statement.

“The auction attracted PHP 61.8 billion in total tenders, 2.5 times the PHP 25-billion offer. With its decision, the committee raised the full program of PHP 25 billion, bringing the total outstanding volume for the series to PHP 295.0 billion,” it added.

The Treasury made a full award of its bond offer as the average rate was below secondary market yields, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This came amid lower global crude oil prices recently, Mr. Ricafort said.

Oil prices sank by about 5% to a five-week low on Tuesday, with Brent futures falling USD 3.99 or 5% to settle at USD 75.32 a barrel, while West Texas Intermediate crude fell USD 4 or 5.3% to end at USD 71.66, Reuters reported.

That was the lowest close for both benchmarks since March 24 and was also their biggest one-day percentage declines since early January.

“The large maturities of seven-year T-bonds… also added to liquidity in the financial system and somewhat added to the demand for government securities in the market,” Mr. Ricafort added.

Meanwhile, a trader said the auction result was contrary to their expectations that investors would ask for yields above 6% or close to the Bangko Sentral ng Pilipinas’ (BSP) key rate.

The trader said the demand likely came from end-user clients who wanted to lock in yields.

The Monetary Board last month hiked borrowing costs by 25 bps to help bring down elevated inflation, bringing its policy rate to a 16-month high of 6.25%.

Since May 2022, the BSP has raised benchmark rates by a total of 425 bps.

It will hold its next policy meeting on May 18.

BSP Governor Felipe M. Medalla last month said the Monetary Board could consider pausing its tightening cycle at its next meeting if inflation eased further in April.

Inflation likely slowed further in April amid lower food prices, electricity rate cuts, and favorable base effects, analysts said.

A BusinessWorld poll of 14 analysts yielded a median estimate of 7% for April inflation, settling near the upper end of the BSP’s 6.3-7.1% forecast range for the month.

If realized, this would be slower than the 7.6% in March, but faster than the 4.9% in April 2022. This will also be the slowest since the 6.9% print in September last year.

However, it would surpass the BSP’s 2-4% target for the 13th consecutive month.

April consumer price index data will be released on May 5, Friday.

The BTr wants to raise PHP 175 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 100 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — By A.M.C. Sy with Reuters

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