Treasury fully awards fresh 10-year T-bonds

The government made a full award of the new 10-year Treasury bonds (T-bonds) it offered on Tuesday amid bets on the next policy moves of the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned from the fresh 10-year bonds it auctioned off on Tuesday as total bids reached PHp 102.233 billion or more than thrice the amount on offer.

The bonds were awarded at a coupon rate of 6.25%. Accepted yields ranged from 6.1% to 6.25% for an average rate of 6.218%.

The coupon fetched for the tenor was 0.2 basis point (bp) higher than the 6.248% quoted for the 10-year bond at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

To accommodate the strong demand seen for the offering, the BTr held a tap facility auction on Tuesday to raise an additional P5 billion from the papers.

“The higher T-bond rates at today’s auction reflected recent comments from BSP Governor Remolona and from various Fed officials over prospects of delayed policy rate cuts this year,” a trader said in an e-mail on Tuesday.

However, the average rate fetched for the bonds was lower than the 6.224% seen for the reissued 10-year notes awarded on Dec. 5, 2023 as inflation is seen easing towards the BSP’s 2-4% goal this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted in a Viber message.

BSP Governor Eli M. Remolona, Jr. said over the weekend that the central bank is unlikely to begin easing benchmark interest rates within the first half amid lingering upside risks to inflation.

The Monetary Board raised borrowing costs by 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%.

The BSP expects headline inflation to average 3.7% this year, slower than 6% seen in 2023.

The central bank will hold its first policy meeting for this year on Feb. 15.

Meanwhile, a steady stream of Fed officials, starting with Governor Christopher Waller on Tuesday, have pushed back on market expectations the central bank will embark on a path of fast reductions to interest rates. Mr. Waller said the Fed should proceed “methodically and carefully” until it is clear lower inflation will be sustained, Reuters reported.

On Friday, Chicago Fed President Austan Goolsbee said weeks more of inflation data need to be in hand before any decision could be made to cut interest rates.

In addition, Federal Reserve Bank of San Francisco President Mary Daly said there is still a lot of work left to do on inflation and it is premature to think rate cuts are around the corner.

Expectations for a cut from the Fed in March of at least 25 bps have dipped below 50% according to CME’s FedWatch Tool, with traders now targeting May as the likely month for a rate cut announcement.

The US central bank raised borrowing costs by a total of 525 bps from March 2022 to July 2023 to the 5.25-5.5% range.

It will hold its first meeting for the year on Jan. 30-31.

The government wants to raise PHP 195 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 120 billion through T-bonds.

The BTr borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year. — AMCS with Reuters