THE GOVERNMENT fully awarded the reissued benchmark 25-year Treasury bonds (T-bonds) it auctioned off on Tuesday amid strong demand that led it to open its tap facility to offer another P10 billion of the papers.
The Bureau of the Treasury (BTr) on Tuesday raised P35 billion as planned from its offer of reissued 25-year securities that have a remaining life of 13 years and four months. Total bids for the papers reached P94 billion or more than thrice the amount on the auction block.
Rates awarded ranged from 6.75% to 6.949%, bringing the average yield on the bonds to 6.894%, up by 1 basis point (bp) from the 6.884% average but 123.1 bps lower than the 8.125% coupon fetched for the series when it was first offered on Dec. 14, 2010.
The average rate for the tenor was also 8.8 bps below the 6.982% PHP Bloomberg Valuation Reference Rate for the 15-year paper — the benchmark closest to the remaining life of the offered securities — and 2.8 bps lower than the 6.922% quoted for the 25-year tenor at the secondary market before the auction, based on data from the BTr.
The benchmark 25-year papers offered on Tuesday were issued on Dec. 16, 2010 following a bond exchange program by the government, the first time a swap was offered for the tenor. The issuance reached P166.22 billion, surpassing the initial P30-billion program.
To accommodate the strong demand seen for Tuesday’s offering, the Treasury opened its tap facility to raise P10 billion more via the bonds at the same average rate awarded during the auction proper.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the government fully awarded its T-bond offer as the long-tenored papers continued to attract strong demand from investors looking for higher yields.
“The rate was lower than secondary and market did not ask for any maturity or illiquidity premium,” Ms. De Leon said.
Given the results of the BTr’s T-bond auctions this month, the August borrowing program will again include long tenors, she added.
The first trader likewise said strong interest in longer tenors led to the Treasury’s successful auction.
“Right now, long-end bonds are ‘trending,’ as evidenced by strong auction turnouts this month. Market players are currently bargain hunting on the long-end sector for better yield pickup against the backdrop of monetary tightening cycle by central banks,” the first trader said.
“Another successful auction for BTr,” the second trader said. “As observed in last week’s 10-year auction, it seems that there is strong demand from end-users who are awash with liquidity.”
Global central banks, including the Bangko Sentral ng Pilipinas (BSP), have been tightening their monetary policies as supply chain and geopolitical issues have caused inflation to rise.
The BSP Monetary Board on July 14 raised its benchmark interest rates by an all-time high 75 bps in an off-cycle review. The surprise move came ahead of its regular policy meeting scheduled on Aug. 18, and follows two 25-bp rate hikes each in May and June.
BSP Governor Felipe M. Medalla said then that the big rate increase was due to signs of growing price pressures, compounded by the impact of aggressive tightening by the US Federal Reserve on the peso, which could lead to higher inflation.
On Tuesday, Mr. Medalla said the central bank will likely hike borrowing costs by another 25 bps or by 50 bps at their August meeting with the Fed expected to continue firing off big rate increases, although he ruled out another off-cycle move.
Headline inflation was at a near four-year high of 6.1% in June, bringing the first-half average to 4.4%, above the BSP’s 2-4% target but still below its full-year forecast of 5%.
Tuesday’s T-bond auction was the last one for the month. The government raised P140 billion as planned via bonds on the back of robust demand for higher-yielding longer tenors amid expectations of higher interest rates due to mounting inflationary pressures.
With the BTr raising P54.81 billion via Treasury bills this month against the P60-billion program, the government was able to borrow P194.81 billion out of its P200-billion plan for July.
It is expected to release its August domestic borrowing plan this week.
The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — Diego Gabriel C. Robles