Gov’t partially awards reissued 7-year T-bonds

The government made a partial award of the reissued seven-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a higher average rate amid a rise in yields due to Fitch Ratings’ downgrade of the United States.

The Bureau of the Treasury (BTr) raised just PHP 23.629 billion from the reissued seven-year bonds on Tuesday, below the PHP 30-billion program, even as total bids for the offer reached PHP 43.374 billion.

The bonds, which have a remaining life of six years and two months, were awarded at an average rate of 6.468%, with accepted yields ranging from 6.378% to 6.5%.

The average rate of the reissued bonds was 16.9 basis points (bps) higher than the 6.299% quoted for the papers when they were last offered on July 18.

Still, this was 53.2 bps below the 7% coupon for the series.

The average rate was also 1.1 bps above than the 6.457% quoted for the six-year bond, but 1.8 bps below the 6.486% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

“The Auction Committee partially awarded the reissued 7-year Treasury Bonds at today’s auction. With a remaining term of 6 years and 2 months, the bond (FXTN 07-68) was awarded at an average rate of 6.468%,” the BTr said in a statement on Tuesday.

“The auction was 1.4 times oversubscribed as total submitted bids amounted to PHP 43.4 billion. With its decision, the Committee raised PHP 23.6 billion out of the PHP 30-billion offering, bringing the total outstanding volume for the series to PHP 145.4 billion,” it added.

The bonds fetch higher yields as they “tracked the similar movement in T-bill (Treasury bill) auctions [on Monday] amid the impact of the US sovereign credit rating downgrade,” a trader said in an e-mail.

On Monday, the BTr partially awarded the T-bills it auctioned off as rates rose across the board, tracking the increase in US Treasury yields last week after Fitch’s rating action.

Fitch last week downgraded the United States to “AA+” from “AAA,” citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills, Reuters reported.

The average rate seen for the T-bonds offered on Tuesday were close to secondary market levels amid hawkish signals from the Philippine central bank’s chief, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona earlier 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 BSP expects inflation to return to the 2-4% target by the fourth quarter.

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 August 17 to review policy.

The BTr wants to raise PHP 225 billion from the domestic market this month, or PHP 75 billion via T-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