Gov’t partially awards seven-year bonds

The government made a partial award of the reissued seven-year Treasury bonds (T-bonds) it offered on Tuesday as its average rate was lower than secondary market levels amid signals from the Bangko Sentral ng Pilipinas (BSP) that inflation might remain elevated until next year.

The Bureau of the Treasury (BTr) raised just PHP 9.877 billion via the reissued seven-year bonds it auctioned off on Tuesday, below the PHP 30-billion program, despite total bids reaching PHP 57.792 billion, almost twice the amount on offer.

The bonds, which have a remaining life of six years and 10 months, were awarded at an average rate of 6.37%, with accepted yields ranging from 6.365% to 6.373%.

The average rate of the reissued bonds was 4.2 basis points (bps) higher than the 6.328% quoted for the papers when they were first offered on July 26, 2022. Still, this was 0.5 bp below the 6.375% coupon for the series.

The average rate was 5.5 bps lower than the 6.425% quoted for the seven-year bond and 12.6 bps below the 6.496% 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.

“The Auction Committee partially awarded the reissued seven-year Treasury Bonds at today’s auction. With a remaining term of six years and 10 months, the bond series 07-70 was awarded at an average rate of 6.370%,” the BTr said in a statement on Tuesday.

“The auction was 1.9 times oversubscribed as total submitted bids amounted to PHP 57.8 billion. With its decision, the Committee raised PHP 9.9 billion out of the PHP 30 billion offering, bringing the total outstanding volume for the series to PHP 34.7 billion,” it added.

The government made a partial award of its T-bond offer as rates were below comparable secondary market yields after the BSP chief said inflation could only return within the target range by the first quarter of 2024, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. last week said he expects inflation to be back within their 2-4% target range early next year amid lingering price risks.

He added that the BSP could upwardly revise its full-year inflation forecast of 5.6% for 2023 at their Sept. 21 policy meeting.

Headline inflation picked up to a two-month high of 5.3% in August from 4.7% in July, marking the 17^th consecutive month that the consumer price index (CPI) was above the BSP’s 2-4% target.

Still, this was below the 6.3% print in August 2022, and was within the BSP’s 4.8-5.6% forecast for the month.

For the first eight months, the CPI averaged 6.6%, above the central bank’s full-year forecast of 5.6%.

The partial award came due to caution ahead of the release of August US CPI data on Wednesday, a trader said in an e-mail.

The BTr wants to raise PHP 180 billion from the domestic market this month or PHP 60 billion via Treasury bills and PHP 120 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