Gov’t makes full award of Treasury bond offering

THE GOVERNMENT fully awarded the reissued seven-year Treasury bonds (T-bonds) it auctioned off on Tuesday as its average rate declined from the previous offering of the series.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued seven-year bonds it offered on Tuesday as total bids reached PHP 58.599 billion, more than twice the amount on the auction block.

The bonds, which have a remaining life of six years and two months, were awarded at an average rate of 6.172%, with accepted yields ranging from 6.029% to 6.2%.

The average rate of the issue was 41.6 basis points (bps) lower than the 6.588% quoted for the series when it was last offered on September 20. It was likewise 32.8 bps below the 6.5% coupon for the series.

However, the average yield fetched for the papers was 14.80 bps above the 6.024% seen for the same bond series and 9.40 bps higher than the 6.078% quoted for the six-year bonds at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

“The Auction Committee decided to fully award the reissued 7-year Treasury bonds at today’s auction. With a remaining term of 6 years and 2 months, the reissued Treasury bonds (FXTN 07-67) fetched an average rate of 6.172%, lower than the original coupon rate of 6.5% set on its first issue in May 2022 and the 6.588% average rate upon its last issuance in September 2022,” the BTr said in a statement on Tuesday.

“The auction attracted total tenders of PHP 58.6 billion, 2.3 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 99.7 billion,” it added.

A trader said in a Viber message that the range of bid rates accepted for the bonds was well within their expectations.

“The path of policy rates, with the RRP (overnight reverse repurchase facility) rate currently at 6%, suggests that bonds should be above 6%,” the trader said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message that investors asked for yields near the BSP’s key rate.

Mr. Ricafort said the average rate was slightly higher than secondary market levels “in view of market expectations of another three US Federal Reserve rate hikes of 25 bps each in March, May, and June 2023 that could be matched locally” and “amid the recent reiteration of further local policy rate hike of about 25 bps on March 23.”

The US central bank hiked its fed funds rate by 25 bps in its January 31 to February 1 meeting to a range between 4.5% and 4.75%. This brought cumulative increases since March 2022 to 450 bps.

The Fed’s next policy meeting is on March 21-22.

Fed futures now have rates peaking at around 5.4%, implying at least three more hikes from the current 4.50% to 4.75% band, and some chance of 50 bps in March, Reuters reported.

Meanwhile, BSP Governor Felipe M. Medalla last week said they could hike borrowing costs again at their meeting on March 23, adding that a smaller 25-bp move is the “most likely” option amid signs of slower inflation in February.

The BSP hiked benchmark interest rates by 50 bps for a second straight meeting on Feb. 16 to tame inflation.

This brought its policy rate to 6%, the highest in nearly 16 years or since May 2007 when it stood at 7.5%. It has now raised borrowing costs by 400 bps since May 2022.

The BTr wants to raise PHP 200 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 125 billion via T-bonds. — A.M.C. Sy