THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday at a lower yield, driven by robust demand for tenors at the belly of the curve as investors seek better returns for less risk, and with the market looking ahead to the Bangko Sentral ng Pilipinas’ (BSP) policy move later this week.
The Bureau of the Treasury (BTr) borrowed P30 billion as planned through the reissued seven-year bonds it auctioned off as the offer was more than twice oversubscribed, with tenders reaching P62.886 billion.
This brought the outstanding volume for the bond series to P306.1 billion, it said in a statement after the auction. The BTr said it made a full award of the offering amid strong demand and as the average yield fetched was below the level quoted for the same papers when they were last sold.
The reissued papers, which have a remaining life of three years and one month, were awarded at an average rate of 6.825%, with accepted yields from 6.8% to 6.85%.
This dropped by 39.2 basis points (bps) from the 7.217% fetched for the series’ last award on July 28 and was also 17.5 bps below the 7% coupon rate for the issue.
However, this was 5.9 bps higher than the 6.766% fetched for the same bond series and 13.3 bps above the 6.692% quoted for the three-year debt — the benchmark tenor closest to the remaining life of the papers on offer — at the secondary market before Tuesday’s auction, based on PHL Bloomberg Valuation Service Reference Rates data provided by the BTr.
“Auction results were mostly in line with market expectations as the offer was twice oversubscribed,” a trader said in a phone interview.
Demand for bonds with tenors of three to five years is strong as investors want higher yields without locking in their cash for too long, the trader said.
The yields quoted at the auction already priced in the rate hike expected from the BSP on Thursday, the trader added.
The T-bond’s yield eased as the market sees a “less hawkish” stance from the Philippine central bank, even with a third straight tightening move likely this week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
A BusinessWorld poll showed that 19 of 24 analysts expect the Monetary Board to raise the target reverse repurchase by 25 bps for a third consecutive meeting this week as inflation stays well above target.
The rest expect the central bank to hold fire amid lingering uncertainties, especially with economic growth weakening.
The Monetary Board has raised benchmark rates by a total of 50 bps since April, bringing the policy rate to 4.75%.
BSP Governor Eli M. Remolona, Jr. said last week that they stand ready to adjust their policy stance as needed to bring inflation back to their target amid broadening price risks, especially with the Middle East conflict still unresolved.
This, even as weak economic growth somehow eases the pressure on the central bank to take aggressive action.
Philippine gross domestic product growth slowed to a new post-pandemic low of 2.3% in the second quarter. For the first half, the economy expanded by an average of 2.6%, below the government’s 3.5%-4.5% full-year goal.
Meanwhile, headline inflation slowed to a four-month low of 6.2% in July, but this was the fifth straight month that it settled above the central bank’s 3% target and 2%-4% comfort band.
Year to date, inflation averaged 5%. The BSP sees the headline print averaging 6.4% this year.
Tuesday’s auction was the last for the month. The government borrowed P346.425 billion from the domestic market in August, above its P330-billion program, as it offered cash management bills during the month and opened its tap facility for one T-bond auction.
For September, the government is aiming to raise P380 billion from the local debt market, or P250 billion through Treasury bills and P130 billion via T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion or 5.4% of gross domestic product this year. — Aaron Michael C. Sy
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