Gov’t makes full award of reissued 25-year bonds

THE GOVERNMENT fully awarded the reissued 25-year Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher yields ahead of the Bangko Sentral ng Pilipinas’ (BSP) rate hike this week.

The Bureau of the Treasury (BTr) raised P35 billion as planned from its offer of 25-year papers on Tuesday as total bids reached P80.953 billion.

The bonds, which have a remaining life of 11 years and 11 months, were awarded at an average rate of 8.168%, 91.2 basis points (bps) lower than the 9.08% average quoted for the bond when it was first offered on Nov. 3, 2009 and 108.2 bps below the 9.25% coupon for the issue.

However, the average rate for the bond was higher than secondary market yields. It was 29.25 bps above the 7.8755% quoted for the bond series and 47.51 bps higher than the 7.6929% yield seen for the 10-year tenor prior to the auction, based on PHP Bloomberg Valuation Service 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 P5 billion more via the bonds for a yield-to-maturity of 8.168%.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the BTr made a full award of its T-bond offer even with the average rate for the issue above secondary market yields as the increase was reasonable due to the BSP’s expected tightening on Thursday.

The first trader said in a phone interview that the Treasury fully awarded its offer amid strong demand from the market.

The second trader added that the auction result was within market expectations.

“Investors continue to demand higher yields as the policy rate is expected to trend higher. The award just shows that BTr seems comfortable awarding at these levels given that the tenor is favorable,” the second trader added in a text message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a text message that the Treasury made a full award as demand for the offering was significantly higher ahead of the BSP’s anticipated rate hike.

He noted that the full award was made even as the yield was higher compared with the rate of the 12-year paper at the secondary market, which was at 7.74% as of Nov. 14.

The BSP is set to raise benchmark interest rates by 75 bps at its policy meeting on Thursday to keep in step with the US Federal Reserve as it seeks to stabilize prices and support the peso.

Since May, the BSP has hiked borrowing costs by 225 bps to tame rising inflation, bringing the policy rate to 4.25%.

October inflation accelerated to 7.7%, its fastest pace in 14 years, driven by rising food costs. For the first 10 months, inflation averaged 5.4%, higher than the central bank’s 2-4% target but lower than its 5.6% full-year forecast.

Meanwhile, the Fed this month delivered a fourth-straight 75-bp increase. It has raised borrowing costs by 375 bps since March, bringing the federal funds rate between 3.75-4%.

The BTr wants to raise P215 billion from the domestic market this month, or P75 billion through Treasury bills and P140 billion from T-bonds.

The government borrows from local and external sources to help finance a budget deficit capped at 7.6% of gross domestic product this year. — Luisa Maria Jacinta C. Jocson