Gov’t fully awards bonds amid strong demand

THE GOVERNMENT made a full award of the Treasury bonds (T-bonds) it offered on Tuesday amid robust demand and as rates were in line with secondary market levels amid expectations that the Bangko Sentral ng Pilipinas (BSP) will cut borrowing rates further at its meeting this week.

The Bureau of the Treasury (BTr) raised P15 billion as planned via the reissued 10-year bonds it auctioned off on Tuesday as total bids reached P40.876 billion, or almost three times the amount on offer.

This brought the total outstanding volume for the series to P205 billion, the Treasury said in a statement.

The bonds, which have a remaining life of six years and nine months, were awarded at an average rate of 5.69%. Accepted yields ranged from 5.65% to 5.7%.

The average rate of the reissued papers was 55 basis points (bps) higher than the 5.13% fetched for the bonds when they were last awarded on Nov. 9, 2021. This was also 169 bps above the 4% coupon rate for the issue.

Still, this was 1.4 bps lower than the 5.704% fetched for the seven-year bond, the tenor closest to the remaining life of the T-bonds on offer, and 5.53 bps below the 5.7453% quoted for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The government made a full award of its T-bond offer as the average yield fetched for the issue was aligned with prevailing secondary market rates, the Treasury said.

The BTr’s offer was met with strong demand as expected as the bond on offer is “relatively illiquid,” a trader said in a text message.

The Treasury fully awarded its offering as rates were slightly below comparable secondary market levels as the market expects the BSP to reduce borrowing costs at its policy meeting on Wednesday following slower-than-expected headline inflation last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP will likely cut benchmark interest rates by 25 bps for a second straight meeting on Wednesday to continue its easing cycle amid an improving inflation outlook, analysts said.

A BusinessWorld poll conducted last week showed that 16 out of 19 analysts expect the Monetary Board to reduce borrowing costs by 25 bps at its policy meeting on Oct. 16 to bring the target reverse repurchase rate to 6%.

On the other hand, two analysts expect the BSP to cut by a bigger 50 bps this week, while one sees the Monetary Board keeping rates unchanged.

The BSP kicked off its easing cycle with a 25-bp cut in August, marking the first time it reduced borrowing costs in nearly four years.

BSP Governor Eli M. Remolona, Jr. earlier said they could deliver a 25-bp rate cut at each of their October and December meetings, which would bring the policy rate to 5.75% by yearend.

Philippine headline inflation sharply slowed to 1.9% year on year in September from 3.3% in August and 6.1% a year ago.

This was below the central bank’s 2%-2.8% forecast for the month and was also the slowest print in over four years or since the 1.6% in May 2020.

For the first nine months, inflation averaged 3.4%, matching the central bank’s full-year forecast and also falling within its 2-4% annual target.

The BTr is looking to raise P145 billion from the domestic market this month, or P100 billion via Treasury bills and P45 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product this year. — A.M.C. Sy