Treasury fully awards reissued 20-year bonds

The government made a full award of the 20-year Treasury bonds (T-bonds) it offered on Wednesday as rates were mostly in line with secondary market levels following dovish hints from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned via the reissued 20-year bonds it auctioned off on Wednesday as total bids reached PHP 45.114 billion, or almost double the amount on offer.

This brought the outstanding volume for the series to PHP 102.7 billion, the Treasury said in a statement.

The bonds, which have a remaining life of 19 years and nine months, were awarded at an average rate of 6.198%. Accepted yields ranged from 6.174% to 6.22%.

The average rate of the reissued papers dropped by 66.2 basis points (bps) from the 6.86% fetched for the series’ last award on June 26. This was also 67.7 bps lower than the 6.875% coupon for the issue.

However, it was 0.6 bp above the 6.192% seen for the same bond series and 2 bps higher than the 6.178% quoted for the 20-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

“The higher tendered rate for the bond auction today reflected the upward correction in bond yields following the recent declines from the dovish hints from the FOMC (Federal Open Market Committee) minutes and the Jackson Hole Symposium,” a trader said in an e-mail on Wednesday.

Demand for longer bond tenors has also declined in recent months as more global central banks embark on their monetary easing cycles, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Federal Reserve Chair Jerome H. Powell on Friday endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank’s 2% target, Reuters reported.

“The time has come for policy to adjust,” Mr. Powell said in a highly anticipated speech to the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Analysts and financial markets had already widely expected the Fed to deliver its first rate cut at its Sept. 17-18 policy meeting, a view that was cemented after a readout of the central bank’s July meeting said a “vast majority” of policymakers agreed the policy easing likely would begin next month.

With its policy rate currently in the 5.25%-5.50% range, the Fed has “ample room” to reduce borrowing costs to cushion the economy, Mr. Powell said.

Investors are unanimous in bets that the Fed will begin cutting interest rates next month following Mr. Powell’s dovish tilt last week, with the debate now centered on whether or not it will be a super-sized 50-bp cut.

The current pricing sits at a 36% chance for the larger cut, up from 29% a week ago, according to the CME Group’s FedWatch Tool.

Markets, which are fully priced for a 25-bp cut next month, see just over 100 bps worth of easing by the end of the year.

Wednesday’s auction was the last T-bond offering for the month. The government raised the programmed P140 billion from the long-tenored papers as it fully awarded its offerings at all five auctions.

In total, the BTr raised PHP 225.2 billion from the local market in August, higher than the PHP 220-billion plan as it upsized its Treasury bill (T-bill) awards at two auctions.

In September, the Treasury wants to raise PHP 195 billion from the domestic market, or PHP 80 billion from T-bills and PHP 115 billion from T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy with Reuters