THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it auctioned off on Tuesday at an average rate broadly in line with prevailing secondary market yields as the offer fetched robust demand.
The Bureau of the Treasury (BTr) borrowed P20 billion as planned via the reissued seven-year bonds, with total bids for the tenor reaching P46.752 billion or more than double the amount on offer.
This brought the outstanding volume for the issue to P341.4 billion, the Treasury said in a statement.
It added that it made a full award of the bonds as the offer was oversubscribed and as the average rate fetched for the issue was lower than comparable secondary market levels.
The reissued bonds, which have a remaining life of two years and nine months, were awarded at an average rate of 5.817%. Accepted yields ranged from 5.79% to 5.824%.
The average rate of the reissued papers was up by 5.7 basis points (bps) from the 5.76% fetched for the series’ last award on June 25 and was also 218.2 bps above the 3.635% coupon for the issue.
Meanwhile, this was 0.68 bp below the 5.8102% fetched for the same bond series and 2.39 bps lower than the 5.8408% quoted for the three-year paper — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.
The government fully awarded its T-bond offer as strong demand caused the issue’s average rate to settle near the lower end of the 5.8%-5.875% range expected by the market, a trader said in a text message.
“The auction performed well within market expectations… The bid-to-cover ratio was also high at 2.338 times the awarded volume,” the trader said.
The BTr made a full award as the average rate fetched for the issue was lower than prevailing BVAL yields, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
He added that the strong demand seen for the offering was likely partly due to the P516 billion worth of retail Treasury bonds (RTB) set to mature early next month, with players already looking for reinvestment options with higher yields.
Expectations of further monetary easing by both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve also kept the issue’s average rate in line with prevailing market yields, Mr. Ricafort said.
BSP Governor Eli M. Remolona, Jr. has said that they have room for two more rate cuts this year amid benign inflation.
In June, the central bank delivered a second straight cut, reducing benchmark borrowing costs by 25 bps to bring the key rate to 5.25%. The Monetary Board has now lowered interest rates by a total of 125 bps since it began its easing cycle in August last year.
Meanwhile, the US central bank is widely expected to hold rates steady at the 4.25%-4.5% range in its July 29-30 meeting.
Investors will watch a speech by Federal Reserve Chair Jerome H. Powell set later on Tuesday for clues about when the Fed might cut interest rates, especially after mixed inflation signals last week, Reuters reported.
Traders have largely ruled out a July rate cut, and they now see a greater than 50% chance the Fed will cut by its September meeting, according to CME Group’s FedWatch tool.
The BTr wants to raise P250 billion from the domestic market this month, or P125 billion through Treasury bills and P125 billion via T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — A.M.C. Sy with Reuters
