THE GOVERNMENT made a full award of its dual-tranche Treasury bond (T-bond) offer on Tuesday as both tenors’ rates were below secondary market levels amid strong market interest, a decline in US yields, and expectations of a Bangko Sentral ng Pilipinas (BSP) cut next month.
The Bureau of the Treasury (BTr) raised P35 billion as planned via its dual-tenor T-bond offering as total bids reached P120.917 billion or over three times the amount placed on the auction block.
Broken down, the Treasury borrowed the programmed P15 billion via the reissued seven-year bonds, with total bids reaching P74.593 billion or almost five times the amount on offer. This brought the outstanding volume for the series to P276 billion, the BTr said in a statement.
The bonds, which have a remaining life of three years and two months, were awarded at an average rate of 5.894%. Accepted yields ranged from 5.85% to 5.9%.
The average rate of the reissued papers rose by 224.3 basis points (bps) from the 3.651% fetched for the series’ last award on July 27, 2021. This was also 226.9 bps higher than the 3.625% coupon for the issue.
Still, this was 11.4 bps below the 6.008% seen for the same bond series and 7.8 bps lower than the 5.972% quoted for the three-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.
The government likewise raised P20 billion as planned from the new 25-year T-bonds it auctioned off on Tuesday, with total bids reaching P45.964 billion or more than twice the amount on offer.
The BTr said this was its first offering of new 25-year T-bonds since 2015.
The notes were quoted at a coupon rate of 6.375%. Accepted yields ranged from 6% to 6.45% for an average rate of 6.334%.
The coupon fetched for the tenor was 5.9 bps lower than the 6.434% quoted for the 25-year bond at the secondary market prior to the auction, based on PHP BVAL Service Reference Rates data provided by the Treasury.
Following the strong demand for the 25-year tenor, the BTr on Tuesday opened its tap facility window to all 10 government securities eligible dealers and market makers to raise P5 billion more via the bonds at the same coupon rate quoted during the auction proper.
The government fully awarded its T-bond offering amid strong demand, which a trader said in a text message was expected following the drop in US Treasury yields overnight and the similarly well-received Treasury bill (T-bill) auction on Monday.
“Last night’s drop in US Treasury yields was caused by the drop in US stocks amid the flight to safety. Basically, there is less reason for rates to stay high,” the trader said.
“On the domestic end, investors are growing confident on the destination of rates and caring less about the bumps along the way.”
US Treasury yields tumbled to multi-week lows on Monday, tracking steep declines in equities, as investors sought the safety of government bonds, Reuters reported. The benchmark US 10-year yield dropped 7.7 basis points to 4.546%.
On Tuesday, the yield on benchmark 10-year Treasury notes bounced back in Asia time to 4.55% after dropping to a one-month low of 4.561% the previous day.
The decline in T-bond rates also came amid market expectations of a 25-bp cut by the BSP Monetary Board at its Feb. 13 policy meeting amid easing inflation concerns, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.
BSP Governor Eli M. Remolona, Jr. earlier said the central bank still has room to continue its rate-cut cycle as current benchmark interest rates remain “restrictive.”
The Monetary Board has slashed benchmark borrowing costs by a total of 75 bps since it began its easing cycle in August, bringing its policy rate to 5.75%.
Tuesday’s T-bond auction was the last one for January. The BTr raised P125 billion as planned via long-term debt this month as it made full awards of all its offerings, and also borrowed an additional P15 billion via tap facility window offers following two T-bond auctions.
In February, the government is looking to raise P203 billion from the domestic market, or P88 billion from T-bills and P115 billion from 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. — AMCS with Reuters