THE GOVERNMENT made a partial award of its dual-tranche offer of Treasury bonds (T-bonds) on Tuesday amid weak demand for the longer tenor as several US Federal Reserve officials said they remain cautious about further policy easing.
The Bureau of the Treasury (BTr) raised just P26.848 billion via its dual-tenor T-bond offer, below the P35-billion plan, with total bids reaching P63.666 billion. This came as it made a partial award of the longer tenor it placed on the auction due to weak market appetite.
Broken down, the Treasury borrowed the programmed P10 billion via the reissued seven-year bonds if auctioned off, with total bids reaching P37.924 billion or almost four times the amount on offer.
This brought the total outstanding volume for the bond series to P361.4 billion.
The bonds, which have a remaining life of two years and seven months, were awarded at an average rate of 5.605%. Accepted yields ranged from 5.6% to 5.61%.
The average rate of the reissued papers went down by 2.9 basis points (bps) from the 5.634% fetched for the series’ last award on Aug. 27 but was 198 bps above the 3.625% coupon for the issue.
This was also 0.5 bp above the 5.6% fetched for the same bond series but 5.6 bps lower than the 5.661% quoted for the three-year bond — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.
Meanwhile, the government raised just P16.848 billion from its offering of reissued 20-year T-bonds out of the P25-billion plan, even as tenders reached P25.742 billion.
This brought the total outstanding volume for the bond series to P229.6 billion.
The notes, which have a remaining life of 18 years and eight months, were awarded at an average rate of 6.421%. Accepted yields were from 6.35% to 6.45%.
The average rate declined by 16.3 bps from the 6.584% fetched for the series’ last award on July 29 and was also 45.4 bps lower than the 6.875% coupon for the issue.
However, this was 8.2 bps above the 6.339% seen for the same bond series and 7.5 bps higher than the 6.346% quoted for the 20-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.
The first trader said the mixed results of the auction were within the market’s expectations.
“There was healthy demand for the three-year tenor as investors favored the yield pickup in this space relative to T-bills (Treasury bills). This reflects a cautious willingness to extend holdings toward the three- to five-year space moving forward,” the trader said in a text message.
“For the 20-year, the tepid reception was understandable. Market participants remain guarded given the recent uptrend in US Treasury yields alongside lingering domestic concerns, such as governance and fiscal risks, that could weigh on long-term confidence.”
The government is currently investigating alleged corruption in state flood-control and infrastructure projects, with some lawmakers and Public Works department officials being accused of receiving payoffs and using the national budget to make insertions to fund these kickbacks.
Finance Secretary Ralph G. Recto earlier said corruption related to these projects may have cost the Philippines up to P118.5 billion in economic losses since 2023.
The second trader said that the shorter tenor was met with good demand on expectations of further rate cuts by both the Fed and the Bangko Sentral ng Pilipinas (BSP) for the rest of the year.
“The 20-year T-bonds were not well received due to the less dovish Fed approach for 2026, which weighed on longer-dated tenors,” the second trader said in a phone interview.
Last month, the BSP lowered borrowing costs by 25 bps for a third straight meeting to bring the policy rate to 5%. It has now slashed benchmark rates by a cumulative 150 bps since it began its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. has left the door open to one last cut this year to support growth if needed, which would likely mark the end of its current easing cycle. The Monetary Board’s last two meetings this year are scheduled for October and December.
Meanwhile, the Fed last week lowered its target rate by 25 bps to the 4%-4.25% range, which was its first cut since December. This brought its total reductions since September 2024 to 125 bps.
Its “dot plot” showed projections of two more rate cuts this year.
St. Louis Fed President Alberto Musalem, who votes on Fed policy this year, said the central bank “should tread cautiously,” as its policy rate accounting for inflation might already be close to neutral, Reuters reported.
Atlanta Fed President Raphael Bostic, in a Wall Street Journal interview, said the focus needed to remain on ensuring inflation returns to the Fed’s 2% target from a current level about a percentage point higher and that further rates cuts this year were not needed.
Cleveland Fed President Beth Hammack also said the Fed “should be very cautious in removing monetary policy restriction.” Neither Mr. Bostic nor Ms. Hammack votes on Fed policy this year.
Meanwhile, new Federal Reserve Governor Stephen Miran said on Monday the Fed was misreading how tight it has set monetary policy and would put the job market at risk without aggressive rate cuts.
Fed Chair Jerome H. Powell was set to speak on the economic outlook later on Tuesday.
Traders have reined in bets of interest rate cuts at the Federal Open Market Committee’s October meeting, with Fed funds futures implying a 10.2% chance of a hold, compared to a probability of 8.1% on Friday, according to the CME Group’s FedWatch tool.
The BTr raised P211.848 billion out of the P220-billion borrowing program for September, with Tuesday’s auction seeing the sole partial award made this month.
Next week’s Treasury bill and T-bond auctions will be part of the October program as their issuance dates will fall within that month. The BTr has not yet released its fourth-quarter borrowing plan.
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
