Gov’t partially awards 7-year bonds

The government made a partial award of the fresh seven-year Treasury bonds (T-bonds) it auctioned off on Wednesday at a coupon rate higher than secondary market levels ahead of an expected hike from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised just PHP 24.793 billion via the new seven-year bonds it offered on Wednesday out of the PHP 30-billion program, even as bids reached PHP 55.117 billion.

The bonds were awarded at a coupon rate of 6.375%. Accepted yields ranged from 6.125% to 6.49% for an average of 6.328%.

The coupon fetched for the tenor was 9.7 basis points (bps) higher than the 6.278% quoted for the seven-year bond and also 5.9 bps above the 6.316% fetched for seven-year bonds that will mature on April 27, 2030 traded at the secondary market before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee partially awarded the new 7-year Treasury Bonds at today’s auction, setting the coupon rate at 6.375%. The auction was 1.8 times oversubscribed as total submitted bids amounted to PHP 55.1 billion. With its decision, the Committee raised PHP 24.8 billion out of the PHP 30.0 billion offering,” the BTr said in a statement on Wednesday.

The bond issue’s coupon was within market expectations as investors priced in an expected rate hike by the Fed, a trader said by phone.

The Treasury made a partial award to keep the yield relatively low, the trader added.

The US central bank was set to announce its policy decision at the end of its two-day meeting overnight.

The Federal Reserve was expected to raise interest rates by a quarter of a percentage point on Wednesday, marking the 11^th hike in the US central bank’s past 12 policy meetings and possibly a last move in its aggressive battle to tame inflation, Reuters reported.

The increase, anticipated by investors with nearly a 100% probability, would raise the benchmark overnight interest rate to the 5.25%-5.5% range. That would bring it to roughly the highest level since the approach to the 2007-2009 financial crisis and recession.

The US central bank raised its target interest rate by a total of 500 bps to a range between 5% and 5.25% before pausing its tightening cycle last month.

The Treasury made a partial award of its offer as rates were high due to hawkish signals recently from the Bangko Sentral ng Pilipinas (BSP), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Deputy Governor Francisco G. Dakila, Jr. on Tuesday said the central bank is prepared to resume its policy tightening if needed as it monitors the inflation outlook and domestic demand in the country.

The Monetary Board raised borrowing costs by a total of 425 bps from May 2022 to March 2023, bringing the key interest rate to 6.25%. It paused its tightening for two straight meetings in May and June.

Its next meeting is on August 17.

Wednesday’s T-bond auction was the last for July. The Treasury raised PHP 108.379 billion out of the PHP 120-billion program for the long-tenored papers as it made partial awards in two of its four auctions.

With this, the BTr raised a total of PHP 162.01 billion from the PHP 180-billion domestic borrowing program for June.

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