THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it auctioned off on Tuesday as investors flocked to higher-yielding assets after Moody’s downgraded the United States’ sovereign credit rating.
The Bureau of the Treasury (BTr) raised P30 billion as planned via its offering of reissued 10-year bonds as total bids reached P109.504 billion, or more than thrice the amount on the auction block.
The papers are part of the P300 billion in new benchmark fixed-rate Treasury notes (FXTN) priced on April 15 and issued on April 28.
“The 10-year Treasury bond FXTN 10-73 reissuance attracted strong demand, prompting the Auction Committee to fully award the security at today’s auction… With its decision, the Committee initially raised the full program of P30 billion while accepting further subscription through the tap facility. The total outstanding volume for the series is currently at P330 billion,” the BTr said in a statement on Tuesday. It offered another P10 billion of the same bonds via the tap facility.
It added that it made a full award as the average rate fetched for the bonds was lower than the issue’s coupon and the prevailing secondary market yield for the security.
The bonds, which have a remaining life of nine years and 11 months, were awarded at an average rate of 6.226%. Accepted bid yields ranged from 6.21% to 6.24%.
The average rate for the reissued papers was 14.9 basis points (bps) lower than the 6.375% coupon and 6 bps below the 6.286% average fetched for the bond series when it was first issued on April 28.
This was likewise 2 bps below the 6.246% quoted for the same bond series but 3.4 bps above the 6.192% seen for the 10-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.
The BTr fully awarded the bond offer as demand was strong, with market sentiment supported by US Treasury yield movements overnight, a trader said in a text message.
US Treasury yields recently rose as the market continued to react to Moody’s Ratings’ move to cut its rating for the world’s largest economy, stripping it of its last “Aaa” status, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“That could lead to higher financing costs for governments, corporates, and other borrowers since their debt are priced at a spread above the comparable US Treasury yields,” he said.
Longer-dated Treasury yields gained amid concerns about the US debt load and a tax-cut bill, following Moody’s downgrade of the country’s sovereign credit rating, Reuters reported.
The 30-year Treasury yield hit an 18-month high before backing off those levels. Investors were concerned that the tax bill will increase the debt load by more than previously expected.
The 30-year bond yield gained 3.7 bps to 4.934% after touching 5.037%, the highest since November 2023. The yield on benchmark US 10-year notes rose 3 bps to 4.469%, having earlier reached 4.564%, the highest since April 11.
On Friday, Moody’s lowered the US government’s credit rating one notch amid mounting concerns over deficits and interest costs that remain on an unsustainable pace. It was the last of the major ratings agencies to cut the US sovereign rating from the highest level.
US Federal Reserve officials speaking on Monday took on cautiously the ramifications of the latest downgrade of the US government’s credit rating and unsettled market conditions as they continued to navigate a very uncertain economic environment.
While not an imminent issue for the Fed, over time, higher market borrowing costs tied to a deteriorating US financial position make credit generally more expensive and create restraint on economic activity. In turn, that becomes a consideration for how the Fed sets monetary policy and its expectations for the longer-run path of economic activity.
After a brief sell-off in Treasuries on Monday, they stabilized by Asian trading hours on Tuesday.
The 30-year bond yield was 2.8 bps lower at 4.912% after hitting an 18-month high of 5.037% in the previous trading session.
The BTr is looking to raise P260 billion from the domestic market this month, or P100 billion via Treasury bills and P160 billion through T-bonds
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.54 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters
