Gov’t fully awards reissued bonds even as yields continue to climb

THE GOVERNMENT fully awarded the reissued Treasury bonds (T-bonds) it offered on Tuesday at a higher average yield amid rising US rates due to the ongoing war between Israel and Palestine.

The Bureau of the Treasury (BTr) raised P30 billion as planned via the reissued 10-year bonds it auctioned off on Tuesday as total bids reached P48.872 billion, higher than the offered volume.

The bonds, which have a remaining life of nine years and 10 months, were awarded at an average rate of 6.954%, with accepted yields ranging from 6.8% to 6.999%.

The average rate of the reissued bonds was 27.9 basis points (bps) higher than the 6.675% quoted for the papers when they were last offered on Oct. 17. It was also 32.9 bps above the 6.625% coupon for the series.

The average yield was also 32.2 bps above the 6.632% quoted for the 10-year bond and 42.7 bps higher than 6.527% seen for 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 fully awarded the reissued 10-year Treasury Bonds at today’s auction. With a remaining term of nine years and 10 months, the reissued bond series 10-71 fetched an average rate of 6.954%,” the BTr said in a statement on Tuesday.

“The auction attracted P48.9 billion in total tenders, 1.6 times the P30-billion offer. With its decision, the committee raised the full program of P30 billion, bringing the total outstanding volume for the series to P90 billion,” it added.

The Treasury made a full award of its offer even as the bonds fetched an average yield that is “much higher” than secondary market levels, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a Viber message.

Rates rose after US Treasury yields reached fresh highs, he said, as investors sought safe havens due to the war in the Middle East.

“The average auction yield was also higher amid the lingering geopolitical risks due to the Israel-Hamas war for more than two weeks already, with a potential risk of volatility in global oil prices that could lead to higher inflation and policy rates if the war escalates in the Middle East,” Mr. Ricafort added.

The yield on the benchmark 10-year US Treasury note was up 0.8 basis point at 4.846% in Asian hours on Tuesday, following the previous day’s quick decline after a brief rise above 5.0%, Reuters reported.

The run-up in yields on the 10-year Treasury note, seen as a safe haven in times of economic uncertainty and a benchmark for global borrowing costs, has been driven in part by investors pricing in stronger US growth.

Israel’s military intensified its assault on Hamas militants in Gaza, as the United States and other global powers called for aid to continue flowing into the besieged strip to prevent an already grave humanitarian crisis from worsening.

Israel’s military said it had hit more than 400 militant targets in Gaza overnight and killed dozens of Hamas fighters, including three deputy battalion commanders.

Demand for the T-bond offer was also weak, causing yields to rise, Mr. Ricafort added.

The BTr wants to raise P150 billion from the domestic market this month, or P60 billion via Treasury bills and P90 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. — M.J.B. Poliarco with Reuters