Treasury fully awards reissued bonds as global yields decline

THE GOVERNMENT made a full award of the reissued 25-year Treasury bonds (T-bonds) it auctioned off on Tuesday on the back of strong demand and amid a decline in global yields due to worries over the financial sector.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued 25-year bonds it offered on Tuesday as total bids reached PHP 54.045 billion, more than twice the amount on the auction block.

The bonds, which have a remaining life of 12 years and six months, were awarded at an average rate of 6.167%, with accepted yields ranging from 6.05% to 6.2%.

The average rate of the paper was 3 basis points (bps) lower than the 6.197% quoted for the same bond series when it was last offered on Jan. 31 and 183.30 bps below the 8% coupon for the issue.

It was likewise 9.50 bps lower than the 6.262% seen for the same bond series and 7.50 bps below the 6.242% quoted for the 12-year bond at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded the reissued 25-year Treasury bonds at today’s auction. With a remaining term of 12 years and six months, the reissued bonds (FXTN 25-07) fetched an average rate of 6.167%, lower than the previous average of 6.197% when it was last reissued in January 2023 and current secondary market benchmark rates,” the BTr said in a statement on Tuesday.

“The auction attracted PHP 54 billion in total tenders, 2.2 times the PHP 25-billion offer. With its decision, the committee raised the full program of PHP 25 billion, bringing the total outstanding volume for the series to PHP 188.4 billion,” it added.

Yields on government securities were on a decline since Monday, which resulted in a lower average rate for the T-bond issue, a trader said in a Viber message.

“Demand for bonds surged globally as the flight to quality becomes the theme following the US banking crisis,” the trader said.

The papers fetched a lower average yield amid the recent decline in US and global bond rates on safe-haven demand and dovish Federal Reserve bets following the collapse of two banks in the world’s largest economy, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

He said the decline came “amid recent market expectations of a possible pause on Fed rate hikes or a 25-bp Fed rate hike next week due to stresses in US financial markets.”

Markets remained nervous following the collapse of Silicon Valley Bank last week and the failure of New York’s Signature Bank over the weekend even after the US government took steps to shore up systemic confidence, Reuters reported.

Heavy selling hit US regional bank stocks overnight and traders raced away from bets on US rate hikes, reckoning the instability would turn policy makers cautious.

Two-year Treasuries steadied after their biggest rally since 1987, and US interest rate futures eased slightly after soaring in New York, as markets priced out any chance of a 50-bp Fed hike at its March 21-22 review.

The US central bank hiked its target interest rate by 25 bps to a range between 4.5% and 4.75% at its January 31 to February 1 meeting.

Since March 2022, the Fed has raised borrowing costs by a total of 450 bps.

The BTr wants to borrow PHP 200 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 125 billion via T-bonds.

The government taps local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — AMCS with Reuters