THE GOVERNMENT fully awarded the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate amid robust demand, which led it to open its tap facility.
The Bureau of the Treasury (BTr) raised P35 billion as planned from its offer of reissued 10-year securities that have a remaining life of six years and five months on Tuesday. Total bids reached P105.72 billion or more than thrice the amount on the auction block.
Rates awarded on Tuesday ranged from 5.7% to 5.874%, bringing the average yield for the bonds on offer to 5.791%, lower by 108.4 basis points (bps) than the 6.875% coupon fetched for the series when it was first offered on Jan. 8, 2019.
The average rate was also 6.2 bps below the 5.853% yield on the seven-year bonds, the closest tenor to the remaining life of the papers on offer, but 1.3 bps above the 5.778% quoted for the issue at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Reference Rates data provided by the BTr.
To accommodate the strong demand seen for Tuesday’s offering, the Treasury opened its tap facility to raise P10 billion more via the bonds for a yield-to-maturity of 5.791%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that it was “another well received auction” as bids reached over thrice as much as the offering and with rates seen lower than secondary market levels.
The first trader said that it was “another strong auction, possibly supported by weaker-than-expected GDP (gross domestic product) numbers.”
“The demand was quite similar to the three prior auctions, which also shows that end-users are still extending duration for yield pickup,” the first trader added.
The second trader said the auction result was in line with expectations.
“We know it’s going to be a robust auction given the market’s preference for belly to long-end bonds due to their relatively attractive yields offered,” the second trader said.
Preliminary data released by the Philippine Statistics Authority on Tuesday showed GDP grew by 7.4% year on year in the April to June period, easing from the downward-revised 8.2% reading for the first quarter and the 12.1% expansion in the same period in 2021.
This brought the first semester average to 7.8%, faster than the 3.9% growth seen in the same period last year and well above the government’s 6.5-7.5% target for the year.
Meanwhile, investors have shown strong demand for longer tenors, with the Treasury making full awards of all its T-bond offerings since last month as the market is looking for higher yields amid expectations of higher interest rates due to sustained inflationary pressures.
Headline inflation quickened to 6.4% year on year in July, its fastest pace since October 2018, mainly due to soaring prices of food and higher transport costs.
For the first seven months, inflation averaged 4.7%, faster than the 4% seen in the same period a year ago and the central bank’s 5% inflation forecast, but higher than its 2-4% target for the year.
BSP Governor Felipe M. Medalla last week said the central bank may hike rates by 50 bps at the Monetary Board’s Aug. 18 meeting after headline inflation accelerated further in July.
The Monetary Board last month raised the benchmark interest rates by 75 bps in an off-cycle move, as it sought to contain inflationary pressures. It has raised rates by 125 bps so far since May.
The BTr wants to raise P215 billion from the domestic market this month, or P75 billion through Treasury bills and P140 billion via T-bonds.
The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of GDP this year. — Diego Gabriel C. Robles