Treasury makes full award of reissued bonds at lower rate

THE GOVERNMENT fully awarded the reissued 25-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate as demand for longer tenors remains strong.

The Bureau of the Treasury (BTr) raised PHP 35 billion as planned from the reissued 25-year papers on Tuesday, with bids reaching PHP 78.993 billion or more than twice the amount on the auction block.

The bonds, which have a remaining life of 12 years and eight months, were awarded at rates ranging from 6% to 6.25%, bringing the average to 6.197%, 98.5 basis points (bps) lower than the 7.182% quoted for the series when it was last offered on Jan. 10 and below the 180.3 bps the 8% coupon for the issue.

The average rate fetched for the bond was 0.1 bp lower than the 6.198% quoted for the same bond series but 4.5 bps above the 6.155% seen for the 12-year paper 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 fully awarded the reissued 25-year Treasury Bonds at today’s auction. With a remaining term of 12 years and 8 months, the reissued bonds (FXTN 25-07) fetched an average rate of 6.197%, lower than the previous average of 7.182% when it was last reissued on Jan. 10, 2023,” the BTr said in a statement on Tuesday.

“With its decision, the committee raised the full program of PHP 35.0 billion, bringing the total outstanding volume for the series to PHP 163.4 billion,” it added.

A trader said in the Viber message that the bonds were awarded at the higher end of the range expected by the market as investors were also looking ahead to upcoming bond auctions this month that would increase supply.

The Treasury is looking to raise PHP 35 billion via an offer of five-year T-bonds on Feb. 7, another PHP 35 billion from three-year instruments on Feb. 14, and PHP 35 billion via 10-year bonds on Feb. 21.

“Notice though that this is not as strong as the past two auctions, which is a sign of weakening demand,” the trader said.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the decline in the issue’s average rate was “consistent with the easing trend in long-term PHP BVAL yields for more than three weeks already.”

Mr. Ricafort added that rates continued to drop ahead of the rate-setting meeting of the US Federal Reserve on Jan. 31 to Feb 1, where markets widely expect a 25-bp hike.

Besides the anticipated increase in borrowing costs at the meeting, investors are also waiting for signals from Fed officials about the future path of monetary policy amid signs of easing inflation and a slowing economy.

The Federal Open Market Committee raised its fed funds rate by 50 bps in December to a 4.25%-4.5% range following four straight 75-bp increases, bringing total hikes for 2022 to 425 bps.

The BTr plans to raise PHP 200 billion from the domestic market in February, or PHP 60 billion through Treasury bills and PHP 140 billion via T-bonds.

The government borrows from domestic and external sources to help finance its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy