Gov’t makes full award of reissued 20-year bonds

The government made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday as rates dropped on expectations that the Bangko Sentral ng Pilipinas (BSP) will begin its easing cycle this year.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued 20-year bonds it offered on Tuesday as total bids reached PHP 60.946 billion, or more than twice the amount on the auction block.

The bonds, which have a remaining life of 19 years and 11 months, were awarded at an average rate of 6.189%, with accepted yields ranging from 6.17% to 6.25%.

The average rate of the reissued bonds went down by 2 basis points (bps) from the 6.209% quoted for the papers when they were first offered on Feb. 27 and 6.1 bps below the 6.25% coupon for the issue.

This was also 2.7 bps lower than the 6.216% seen for the same bond series and 13.1 bps below the 6.32% quoted for the 20-year tenor at the secondary market on Tuesday before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

This brought the total outstanding volume for the series to PHP 60 billion, the BTr said in a statement.

“The lower awarded rates today reflected lingering market expectations of BSP rate cuts this year,” a trader said in an e-mail on Tuesday.

A second bond trader said in an e-mail that the average rate of the reissued paper was at the lower end of market expectations amid the large amount of non-competitive bids.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank could consider cutting rates by the second half of the year if inflation is firmly within its 2-4% annual target band.

The Monetary Board raised its policy rate by 450 bps to a near 17-year high of 6.5% from May 2022 to October 2023 to help bring down elevated inflation. It has since kept its policy settings steady.

Headline inflation accelerated for the first time in five months in February to 3.4% from 2.8% in January, but was slower than the 8.6% print in the same month a year ago.

For the first two months of 2024, headline inflation averaged 3.1%, lower than the BSP’s 3.6% full-year baseline forecast but within its 2-4% target.

The BTr is looking to raise PHP 180 billion from the domestic market this month, or PHP 60 billion from Treasury bills and PHP 120 billion through 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. — Aaron Michael C. Sy