Gov’t fully awards 10-year bonds as demand soars

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 to offer another P20 billion in the papers.

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 nine years and 11 months on Tuesday. Total bids reached P123.32 billion or more than thrice the amount on the auction block.

Rates awarded ranged from 6.8% to 6.89%, bringing the average yield for the bonds on offer to 6.865%, down by 28 basis points (bps) from the 7.145% average and by 38.50 bps from the 7.25% coupon fetched for the series when it was first offered on June 21.

The average rate fetched for the tenor on Tuesday was also 5.12 bps lower than the 6.9162% quoted for the 10-year bonds at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

To accommodate the strong demand seen for Tuesday’s offering, the Treasury opened its tap facility to raise P20 billion more via the bonds for a yield-to-maturity of 6.865%.

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 on Tuesday due to the overwhelming demand seen for the papers.

“Strong demand is an understatement for the auction. [There was] appetite for the long end coming from good yield pickup, especially for retirement funds to lock in high rates,” Ms. De Leon said.

Asked if the Treasury would prefer to offer longer tenors following the strong demand seen for Tuesday’s offer, the official said the government is “inclined to always stretch maturity subject to [a] reasonable rate.”

The first trader said demand was strong amid extra liquidity in the market amid “spillovers” from the maturity of P103 billion in bonds earlier this month.

The trader said the rate quoted for the papers on Tuesday was “well within [the] expected range.”

“Also, some players are forced to extend duration due to yield pickup offered by this tenor,” the first trader added.

A second trader meanwhile said the rates seen on Tuesday were still on the low side amid the robust demand.

“Auction result was on the low side of our expected range of 6.85-7.10%. As was also seen last week, market is clearly willing to take on duration risk, with tenders 3.5x the offer (versus last week’s 1.9x). We’ve seen the F10-68 (10-year bond) go as low as 6.65% last week, only to retrace back after the BSP (Bangko Sentral ng Pilipinas) raised the policy rate by 75 bps. That recent low will now be a target that the market is eyeing,” the second trader said.

“At the average rate, 6.865%, there is enough buffer to protect it from a higher CPI (consumer price index) and another possible rate hike by Aug. 18,” the trader added.

The BTr’s previous offers of T-bonds this month were also fully awarded amid the market’s preference for higher-yielding longer tenors. On July 5, its offer of P35 billion in reissued seven-year bonds attracted P56.236 billion in tenders, while the July 12 auction of another P35 billion in reissued 10-year bonds was met with bids worth P91.961 billion. 

The high demand seen for those offers was attributed to anticipation of a hawkish move from the central bank amid mounting inflationary pressures.

The BSP last week raised benchmark interest rates by an all-time high 75 bps in an off-cycle move and left the door open for further tightening.

BSP Governor Felipe M. Medalla said the “significant” hike, done ahead of the Monetary Board’s next scheduled meeting on Aug. 18, was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns.

On Friday, Mr. Medalla said he would not rule out another interest rate increase in their policy review next month, although the need for a 50-bp hike at that meeting is “much less now” following Thursday’s surprise move.

Headline inflation was at a near four-year high of 6.1% in June, exceeding the central bank’s 2-4% target for a third straight month. This brought the first-half average to 4.4%, still below the BSP’s full-year forecast of 5%.

The BTr wants to raise P200 billion from the domestic market this month, or P60 billion via Treasury bills and P140 billion from T-bonds.

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