Gov’t makes full award of bonds

THE GOVERNMENT made a full award of the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a higher average rate due to hawkish signals from both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The Bureau of the Treasury (BTr) raised P25 billion as planned from the reissued 10-year bonds it offered on Tuesday, with total bids reaching P48.73 billion.

The bonds, which have a remaining life of nine years and two months, were awarded at an average rate of 6.243%, with accepted yields ranging from 6.18% to 6.275%.

The average rate of the reissued bonds was 28.5 basis points (bps) above the 5.958% quoted for the papers when they were last offered on May 30, but 50.7 bps lower than the 6.75% coupon for the series.

This was also 5.7 bps higher than the 6.186% quoted for the nine-year paper and 11.2 bps above the 6.131% 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 fully awarded the reissued 10-year Treasury Bonds (FXTN 10-69) at today’s auction. With 9 years and 2 months to maturity, the security fetched an average rate of 6.243%, lower than the coupon rate of 6.750% set on its first issuance in September 2022. The auction was 1.9 times oversubscribed with total tenders reaching P48.7 billion,” the BTr said in a statement on Tuesday.

“With its decision, the Committee raised the full program of P25 billion, bringing the total outstanding volume for the series to P240 billion,” it added.

The bonds fetched a higher average rate as Fed Chair Jerome H. Powell last week said they could hike rates two more times this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The higher yields in today’s auction were due to growing market sentiment of elevated interest rates for the year following hawkish policy comments from Fed Chair Powell during his semi-annual testimony to the US Congress last week,” a trader likewise said in an e-mail on Tuesday.

A majority of Fed policy makers see two more quarter-point rate increases as likely by the end of the year, Mr. Powell said last week.

The Fed paused its aggressive tightening cycle for the first time in its June 13-14 review after hiking for 10 straight meetings by a cumulative 500 bps since March 2022 to a range between 5% and 5.25%.

Its next meeting is on July 25-26.

Mr. Ricafort added that expectations that the BSP would keep its key rate unchanged at a near 16-year high of 6.25% for the rest of the year also pushed yields higher.

The BSP may keep its benchmark interest rates steady for the rest of the year before it starts easing by early 2024, Finance Secretary and Monetary Board member Benjamin E. Diokno said last week.

The Monetary Board kept benchmark interest rates unchanged for a second straight meeting on June 22 after raising borrowing costs by 425 bps from May 2022 to March 2023.

The BSP’s next policy review is on Aug. 17.

Tuesday’s auction was the Treasury’s last offering of T-bonds for July. It raised the programmed P125 billion for the long-tenored papers as it made full awards at all five auctions for the month.

With the BTr raising P47.989 billion via Treasury bills versus the P60-billion plan, the government was able to borrow P172.989 billion out of its P185-billion domestic program for July.

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. — A.M.C. Sy