Treasury fully awards reissued T-bonds, allows rate to advance

The government fully awarded reissued 20-year Treasury bonds at a higher rate at an auction on Wednesday as investors expect yields to start declining later this year.

The Bureau of the Treasury raised PHP 25 billion from the debt, with total bids reaching PHP 51.705 billion, or more than twice the offer.

The bonds, which have a remaining life of 14 years and eight months, were awarded at an average rate of 6.085%. Accepted yields were 5.98% to 6.18%.

The average rate of the reissued bonds was 41.5 basis points (bps) lower than the 6.5% coupon for the series.

It was 10.1 bps higher than the 5.984% quoted for the 15-year bond and 9.9 bps above the 5.986% seen for the same bond series at the secondary market before Wednesday’s auction, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates provided by the Treasury bureau.

The agency said tenders for the bonds, which were last auctioned off on July 31, 2018 when the Treasury rejected all bids, were 2.1 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 165 billion,” it added.

“The higher bid rates for the Treasury auction today were still reflective of stronger demand for high-yielding long-term securities,” a trader said in an e-mail. “Investors are expecting potentially lower bond yields later this year or by 2024. Hence, investors are currently seeking to lock in higher rates.”

The higher rates followed the rising US Treasury yields, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The 10-year US Treasury yield was up 10.4 bps at 3.452%, approaching the top of its range since March, Reuters reported.

The US Treasury yields rose ahead of the conclusion of the US Federal Reserve’s meeting on June 13-14, Mr. Ricafort said.

The US central bank raised borrowing costs by 25 bps last month, bringing the Fed fund rate to 5-5.25%. It has increased borrowing costs by 500 bps since March 2022.

The Treasury bureau wants to raise PHP 185 billion from the domestic market in June — PHP 60 billion via Treasury bills and PHP 125 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 economic output this year. — Aaron Michael C. Sy