Treasury fully awards dual-tenor bond offer

The government made a full award of its dual-tenor Treasury bond (T-bond) offer on Tuesday at average rates broadly in line with secondary market levels, with investors locking in still-high yields amid expectations that the Bangko Sentral ng Pilipinas (BSP) will soon resume its monetary easing cycle.

The Bureau of the Treasury (BTr) raised PHP 35 billion as planned via its dual-tranche T-bond offering as total bids reached PHP 75.32 billion, or more than twice the amount placed on the auction block.

Broken down, the Treasury borrowed the programmed PHP 10 billion via the reissued seven-year bonds, with total bids reaching PHP 41.483 billion or more than four times the amount on offer.

The bonds, which have a remaining life of three years and 26 days, were awarded at an average rate of 5.779%. Accepted yields ranged from 5.765% to 5.79%.

The average rate of the reissued papers went down by 11.5 basis points (bps) from the 5.894% fetched for the series’ last award on Jan. 28. However, this was well above the 3.625% coupon for the issue.

This was also 0.19 bp below the 5.7809% fetched for the same bond series and 9.33 bps lower than the 5.8723% quoted for the three-year bond — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

The strong demand for the reissued seven-year bonds prompted the BTr to open its tap facility window to raise P5 billion more via the papers.

Meanwhile, the government likewise raised P25 billion as planned from the reissued 25-year T-bonds it auctioned off on Tuesday, with total bids reaching PHP 33.837 billion.

The notes, which have a remaining life of 24 years and nine months, were awarded at an average rate of 6.476%. Accepted yields ranged from 6.37% to 6.58%.

The average rate rose by 14.2 bps from the 6.334% fetched for the series’ last award on Jan. 28 and was likewise 10.1 bps higher than the 6.375% coupon for the issue.

This was also 4.13 bps above the 6.4347% seen for the same bond series and 17.22 bps higher than the 6.3038% quoted for the 25-year bond at the secondary market before Tuesday’s auction, BVAL Reference Rates data provided by the BTr showed.

“Both were awarded within expected range, although the 25-year was awarded at the higher end while the three-year was at the lower end.

This just shows that the market has a strong appetite for shorter tenors ahead of the expected Monetary Board rate cut next month,” a trader said in a text message.

Market players were also locking in relatively higher returns before the latest round of cuts in banks’ reserve requirement ratios takes effect on Friday, which would free up about PHP 330 billion in liquidity that could go into government securities and cause yields to drop, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

BSP Governor Eli M. Remolona, Jr. said in an interview with Bloomberg Television on the sidelines of the HSBC Global Investment Summit in Hong Kong on Tuesday that there is a “good chance” that the Monetary Board will cut rates by 25 bps at their April 10 meeting.

He reiterated that the BSP remains on an easing cycle and could bring down borrowing costs by as much as 75 bps this year depending on data.

The central bank has reduced benchmark interest rates by a cumulative 75 bps since it began its rate-cut cycle in August last year, with its policy rate currently at 5.75%.

The BSP in February unexpectedly kept rates unchanged in a “prudent” move amid uncertainties stemming from the Trump administration’s policies.

Mr. Ricafort said these uncertainties are likely affecting demand for longer bond tenors, as seen in Tuesday’s auction result, with investors preferring to place their funds in debt with shorter maturities.

“Shorter-dated tenors such as the three-year bond and those at the belly of the yield curve are more attractive for many investors compared to the longest tenors such as the 25-year bond due to higher market risks involved in holding on to these debt for a longer number of years while yields are similar or not that far from the shorter-dated tenors,” he said.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.54 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy