THE GOVERNMENT fully awarded the reissued 20-year Treasury bonds (T-bonds) it offered on Tuesday even as rates rose as market players awaited the US Federal Reserve’s policy decision this week.
The Bureau of the Treasury (BTr) borrowed P20 billion as planned via the reissued 20-year bonds, with total bids reaching P39.511 billion or almost double the amount on offer.
This brought the outstanding volume for the issue to P212.7 billion, the Treasury said in a statement.
The reissued notes, which have a remaining life of 18 years and 10 months, were awarded at an average rate of 6.584%. Accepted yields ranged from 6.5% to 6.62%.
The average rate for the reissued papers went up by 9.8 basis points (bps) from the 6.486% fetched for the series’ last award on May 15 but was still 29.1 bps below the 6.875% coupon for the issue.
This was also 3.4 bps above the 6.55% seen for the same bond series and 1.6 bps higher than the 6.568% quoted for the 20-year paper 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 the result was “well within market expectations,” a trader said in a text message.
“The average awarded rate of 6.584% was [close to] the lower end of the indications (6.55%-6.7%),” the trader said. “The bid-to-cover ratio was decent at 1.98 times the awarded volume.”
“The increase in yield compared to previous auction may have been tracking the upward trend in US Treasury yields overnight. Additionally, the lower demand may be due to the Fed’s meeting this week,” the trader added.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message that the T-bonds fetched higher rates amid elevated US Treasury yields recently due to lingering fiscal concerns in the world’s largest economy.
Yields on 10-year Treasuries held at 4.408% on Tuesday after having crept higher on Monday as markets braced for another steady decision on interest rates from the Federal Reserve, Reuters reported.
Futures imply a 97% chance the Fed will keep rates at 4.25%-4.5% at its meeting on Wednesday and reiterate concerns that tariffs will push inflation higher in the short term.
Analysts also assume one, or maybe two, Fed officials will dissent in favor of a cut and supporting wagers for a move in September.
The odds could change depending on a slew of US data this week including gross domestic product for the second quarter where growth is seen rebounding to an annualized 2.4%, after a 0.5% contraction in the first quarter.
The central bank has been cautious on rate cuts as officials want to determine the impact of tariffs on inflation before making decisions.
Mr. Ricafort added that T-bond yields climbed ahead of an expected retail Treasury bond offering by the government, which could siphon off some liquidity from the market.
Tuesday’s auction was the last for the month. The government raised a total of P262.1 billion from the domestic market in July, higher than the P250-billion plan, as it fully awarded all its T-bond offers and upsized some awards of Treasury bills (T-bills).
For August, the BTr is looking to raise P220 billion from the local market, or P100 billion via T-bills and P120 billion through 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. — Aaron Michael C. Sy with Reuters
