Gov’t makes partial award of reissued bonds as rates climb

The government made a partial award of the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a higher average rate due to hawkish signals from Bangko Sentral ng Pilipinas (BSP) officials.

The Bureau of the Treasury (BTr) raised PHP 26.606 billion via the reissued 10-year bonds it offered on Tuesday out of the PHP 30-billion program, even as bids reached PHP 47.787 billion.

The bonds, which have a remaining life of four years and seven months, were awarded at an average rate of 6.337%, with accepted yields ranging from 6.25% to 6.35%.

The average rate of the reissued bonds was 53.2 basis points (bps) higher than the 5.805% quoted for the papers when they were last offered on June 6.

This was also 5 bps above the 6.287% fetched for the five-year bond and 8.4 bps higher than the 6.253% 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 Treasury.

It was likewise 8.7 bps above the 6.25% coupon for the bond series.

“The Auction Committee partially awarded the reissued 10-year Treasury Bonds (FXTN 10-63) at today’s auction. With 4 years and 7 months to maturity, the yield was capped at an average rate of 6.337%,” the BTr said in a statement on Tuesday.

“The auction was 1.6 times oversubscribed with total tenders reaching PHP 47.8 billion. With its decision, the Committee raised PHP 26.6 billion out of the PHP 30-billion offering, bringing the total outstanding volume for the series to PHP 126.8 billion,” it added.

T-bond yields rose due to hawkish signals from BSP officials, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona last week said it is too early to “declare victory” against inflation, even if it is on its way to the 2-4% target band.

Mr. Remolona said they are ready to resume tightening if needed amid growing threats to the inflation outlook.

The central bank needs to ensure that the downtrend in inflation is “more permanent,” amid persistent upside risks arising from the El Niño weather event and Russia’s invasion of Ukraine, Monetary Board member Bruce J. Tolentino also said last week.

The BSP expects inflation to return to the 2-4% target range by the fourth quarter this year, with full-year inflation hitting 5.4% in 2023. Inflation is expected to decelerate further to 2.9% in 2024.

The Monetary Board hiked borrowing costs by a total of 425 bps from May 2022 to March 2023, bringing the key rate to 6.25%.

It will next meet on Aug. 17 to review policy.

“The T-bond rate awarded today was higher due to market anticipation of a potentially robust US employment report this Friday,” a trader added in an e-mail.

Nonfarm payrolls increased by 209,000 jobs in June, the smallest gain since December 2020, the survey of establishments showed. Economists polled by Reuters had forecast payrolls rising 225,000. It was the first time in 15 months that payrolls missed expectations.

Job growth averaged 278,000 per month in the first half of the year. The economy needs to create 70,000-100,000 jobs per month to keep up with growth in the working-age population.

July nonfarm payrolls data will be released on Friday.

The BTr wants to raise PHP 225 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 150 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. — A.M.C. Sy with Reuters