Treasury fully awards T-bonds at lower rate as May CPI slows

The government made a full award of the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate after the consumer price index (CPI) eased to a one-year low in May.

The Bureau of the Treasury (BTr) raised PHP 25 billion as planned from the reissued 10-year bonds it offered on Tuesday, with total bids reaching PHP 41.742 billion.

The bonds, which have a remaining life of four years and nine months, were awarded at an average rate of 5.805%, with accepted yields ranging from 5.7% to 5.85%.

The average rate of the reissued bonds was 117 basis points (bps) below the 6.975% quoted for the papers when they were last offered on Dec. 4, 2018. It was also 44.5 bps lower than the 6.25% coupon for the series.

However, this was 7.8 bps higher than the 5.727% quoted for the five-year bond and 0.3 bp above the 5.802% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

“The Auction Committee decided to fully award the reissued 10-year Treasury bonds (FXTN 10-63) at today’s auction. With a remaining term of four years and nine months, the security fetched an average rate of 5.805%, lower than the coupon rate of 6.25% set on its first issuance in April 2018 and the previous five-year auction result,” the BTr said in a statement on Tuesday.

“The auction was 1.7 times oversubscribed with total tenders reaching PHP 41.7 billion. With its decision, the Committee raised the full program of PHP 25 billion, bringing the total outstanding volume for the series to PHP 100.2 billion,” it added.

The government made a full award of its T-bond offer as rates were below secondary market levels following the release of data showing that headline inflation slowed further last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“This was caused by the continued decline in local inflation as reported by the PSA (Philippine Statistics Authority) today, which was likewise within market expectations,” a trader likewise said in an e-mail on Tuesday.

Headline inflation eased for a fourth straight month in May, driven by lower transport and food costs, the PSA reported on Tuesday.

The overall rise in prices of consumer goods and services slowed to 6.1% in May from 6.6% in April, preliminary data from the PSA showed. This was faster than the 5.4% print in the same month a year ago.

This was the slowest rate seen in a year or since the 5.4% in May 2022.

The May CPI matched the 6.1% median in a BusinessWorld poll conducted last week. It was also within the 5.8-6.6% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

For the first five months, headline inflation averaged 7.5%, still well above the BSP’s 2-4% target and 5.5% forecast for the year.

Mr. Ricafort added that yields eased amid an expected pause in the US Federal Reserve and BSP’s tightening cycles and lower global crude oil prices recently.

The US central bank raised borrowing costs by 25 bps at its May 2-3 meeting, bringing the Fed funds rate to 5% to 5.25%.

The Fed has hiked borrowing costs by 500 bps since March 2022.

It will hold its next meeting on June 13-14.

Meanwhile, the BSP on May 18 paused its tightening cycle, keeping its key rate unchanged at 6.25% for the first time after nine meetings.

Since it began its aggressive monetary tightening cycle in May 2022, the central bank had raised borrowing costs by 425 bps.

The Monetary Board will next meet to review its policy settings on June 22.

On the other hand, Brent crude futures slipped 27 cents to USD 76.44 a barrel by 0411 GMT, Reuters reported. The US West Texas Intermediate crude fell 33 cents to USD 71.82 a barrel.

The BTr wants to raise PHP 185 billion from the domestic market in June, or P60 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 gross domestic product this year. — By A.M.C. Sy with Reuters