Gov’t makes full award of reissued 7-year bonds

The government made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday at an average rate slightly below secondary market levels after the Bangko Sentral ng Pilipinas (BSP) signaled that it could start its easing cycle as early as next month.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued seven-year bonds it auctioned off on Tuesday as total bids reached PHP 72.954 billion.

The bonds, which have a remaining life of four years and 10 months, were awarded at an average rate of 6.406%. Accepted yields ranged from 6.39% to 6.44%.

The average rate of the reissued seven-year bonds rose by 30.9 basis points (bps) from the 6.097% fetched for the series’ last award on June 20, 2023, but was 9.4 bps lower than the 6.5% coupon for the issue.

This was also 1.2 bps lower than 6.418% quoted for the five-year bond — the tenor closest to the remaining life of the papers on offer — and 1 bp below the 6.416% seen for the same bond series at the secondary market before Wednesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The Treasury made a full award of the reissued papers as they fetched an average yield below secondary market levels and as the offered volume was oversubscribed, it said in a statement after the auction.

Tuesday’s award brought the total outstanding volume for the series to PHP 159.7 billion, it added.

The government fully awarded the bonds as it saw strong demand for its offer, a trader said in a text message.

“Looks like investors, especially end-users, are getting comfortable extending duration following the dovish BSP outlook,” the trader said. “They are now comfortable buying longer bonds for yield pickup, from the usual bills to one-year papers and now to four- to seven-year tenors.”

The average yield fetched for the reissued bonds was slightly below secondary market rates  after the BSP signaled it could cut rates as early as August, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

BSP Governor Eli M. Remolona, Jr. on Thursday said the Monetary Board is “on track” and “somewhat more likely than before” to slash rates at its Aug. 15 policy meeting, well ahead of the US Federal Reserve, which has signaled it could begin easing by December.

The BSP could cut rates by 25 bps in the third quarter and by another 25 bps in the fourth quarter, he added.

The Monetary Board’s Aug. 15 review is its only meeting in the third quarter. Meanwhile, its last two reviews for the year will be held in the fourth quarter and are scheduled on Oct. 17 and Dec. 19.

An August rate cut would be the first for the BSP in over three years, which last slashed borrowing costs by 25 bps in November 2020 to bring the policy rate to a record low of 2% during the height of the coronavirus pandemic.

The BSP last week left its policy rate unchanged at a 17-year of 6.5%, as expected by all 15 analysts in a BusinessWorld poll. Interest rates on the overnight deposit and lending facilities were also maintained at 6% and 7%, respectively.

The Monetary Board hiked rates by a cumulative 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Expectations of easing inflation in the coming months also caused bond yields to go down, Mr. Ricafort added.

Mr. Remolona last week said he expects the consumer price index (CPI) to further ease this semester with the implementation of lower tariffs on rice.

The BSP lowered its average baseline inflation forecasts for 2024 and 2025 to 3.3% and 3.1%, respectively, from 3.5% and 3.3% previously. It also slashed its risk-adjusted inflation forecasts for this year and next to 3.1% from 3.8% and 3.7%, respectively.

Headline inflation averaged 3.5% for the first five months, well within the central bank’s 2-4% goal for the year.

The Philippine Statistics Authority will release June CPI data on Friday (July 5). A BusinessWorld poll of 14 analysts yielded a median estimate of 3.9% for June inflation, within the BSP’s 3.4-4.2% forecast for the month.

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

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy