Gov’t partially awards T-bonds as rates climb on hawkish Fed

The government partially awarded the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a higher average rate following hawkish signals from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised just PHP 23.586 billion from the reissued 10-year bonds it offered on Tuesday versus the PHP 30-billion program, even as total bids reached PHP 52.797 billion.

The bonds, which have a remaining life of nine years and two months, were awarded at an average rate of 6.562%, with accepted yields ranging from 6.4% to 6.595%.

The average rate of the reissued bonds was 31.9 basis points (bps) higher than the 6.243% quoted for the papers when they were last offered on June 27 but 18.8 bps lower than the 6.75% coupon for the series.

This was also 23.3 bps higher than the 6.329% quoted for the nine-year paper and 7.2 bps above the 6.49% 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 10-year Treasury Bonds (FXTN 10-69) at today’s auction. With 9 years and 2 months to maturity, the bond was capped at an average rate of 6.562%. The auction was 1.8 times oversubscribed with total tenders reaching PHP 52.8 billion,” the BTr said in a statement on Tuesday.

“With its decision, the Committee raised 23.6 billion, bringing the total outstanding volume for the series to PHP 263.6 billion,” it added.

Investors asked for higher rates due to expectations that the Fed would hike borrowing costs at its next two meetings, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The higher T-bond rate today comes in line with the movement in this week’s T-bill (Treasury bill) auction as local players digest a potential US policy rate hike this month,” a trader likewise said in an e-mail on Tuesday.

The US central bank could hike rates again after a break last month, Fed Chair Jerome H. Powell said last week, as stronger-than-expected economic data show the need for further tightening.

Mr. Powell also said consecutive increases are on the table.

The US central bank last month paused its tightening cycle after hiking rates for 10 straight meetings by a total of 500 bps to a range between 5% and 5.25%.

The US central bank’s next two meetings will be held on July 25-26 and Sept. 19-20.

Meanwhile, the government made a partial award of the T-bills it offered on Monday as rates climbed due to hawkish remarks from the Fed chief.

The Treasury raised just PHP 9.219 billion via the T-bills it auctioned off on Monday versus the PHP 15-billion program, even as total bids reached PHP 17.419 billion, as rates climbed across all tenors.

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion via T-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. — AMCS