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

The government made a full award of the reissued 20-year Treasury bonds (T-bonds) it offered on Tuesday at an average rate lower than the previous award but slightly above secondary market levels, as investors wanted higher returns for the longer tenor despite expectations of monetary easing this year.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned via the reissued 20-year bonds it auctioned off on Tuesday as total bids reached PHP 44.975 billion, higher than the amount on the auction block.

This brought the outstanding volume for the series to PHP 77.7 billion, the Treasury said in a statement.

The bonds, which have a remaining life of 19 years and 10 months, were awarded at an average rate of 6.43%. Accepted yields ranged from 6.35% to 6.47%.

The average rate of the reissued seven-year bonds dropped by 43 basis points (bps) from the 6.86% fetched for the series’ last award on June 26 and was also 44.5 bps lower than the 6.875% coupon for the issue.

However, the average yield fetched for the debt paper was 3.9 bps above the 6.391% quoted for the 20-year bond and 3 bps higher than the 6.4% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The Treasury fully awarded its bond offer as demand remained ample and as the average yield fetched for the papers dropped from the previous award, even as it was at the higher end of market expectations, a trader said in a text message.

“Investors wanted higher yields to compensate for the tenor,” the trader added.

The reissued papers fetched a lower average yield versus the previous award as investors continue to expect the Bangko Sentral ng Pilipinas (BSP) to begin cutting benchmark interest rates by next month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. last month said the Monetary Board may deliver its first rate cut in over three years at their Aug. 15 review — the only policy meeting scheduled this quarter — as they expect inflation to continue easing until yearend, barring any shocks.

The Monetary Board could reduce benchmark borrowing costs by 25 bps this quarter and by another 25 bps in the fourth quarter, Mr. Remolona said.

The BSP last month kept its policy rate at a 17-year high of 6.5% for a sixth straight meeting following cumulative hikes worth 450 bps from May 2022 to October 2023 to help tame elevated inflation.

On Tuesday, Finance Secretary and Monetary Board member Ralph G. Recto said the BSP remains “on track” to cut rates within the year to support economic growth.

The BTr wants to raise PHP 215 billion from the domestic market this month, or PHP 100 billion through Treasury bills and PHP 115 billion via T-bonds. — A.M.C. Sy