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Treasury makes full award of new 10-year bonds on strong demand


THE GOVERNMENT fully awarded the fresh Treasury bonds (T-bonds) it offered on Tuesday on strong demand for higher-yielding instruments amid expectations of more rate hikes in the United States.

The Bureau of the Treasury (BTr) raised P35 billion as planned via the fresh 10-year T-bonds it auctioned off on Tuesday, with total tenders reaching P99.311 billion or almost thrice the amount on offer.

The debt papers were awarded at a coupon rate of 6.75%, just 15.02 basis points (bps) higher than the 6.6% quoted for the 10-year tenor at the secondary market before the auction, based on the PHP Bloomberg Valuation Reference Rates data provided by the Treasury.

This was likewise 14.1 bps above the 6.609% seen for the 10-year T-bond first issued on June 23 (FXTN 10-68) at the secondary market ahead of Tuesday’s auction.

Accepted rates ranged from 6.5% to 6.8% for an average of 6.703%.

To accommodate the high demand and take advantage of the relatively low rate seen for the bonds, the Treasury offered another P10 billion in the papers via its tap facility.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the government made a full award of its T-bond offer as “strong demand kept rates within secondary market levels.”

This, “even with hawkish statements from the Fed (US Federal Reserve) and its commitment to bring inflation back to its 2% target,” Ms. De Leon said.

Traders said the auction result shows the market’s preference for longer tenors that have better returns.

“Results surprised as the coupon rate was at the lower end of expectations. There are speculations that inflation in the US may be nearing its peak already and this has improved sentiment for bonds,” the first trader said.

“Moreover, investors are seen stretching their duration in exchange for relatively higher yields,” the first trader said.

The second trader likewise said the auction result was “nothing surprising” as investors want longer tenors for yield pickup, with strong demand for 10-year papers also seen at the secondary market last week.

Fed Chair Jerome H. Powell last week said the US central bank is “strongly committed” to fighting inflation and needs to continue acting strongly to bring prices down.

The US central bank will meet to review policy on Sept. 20-21, where markets expect another aggressive hike. It has raised rates by 225 bps so far since March, including back-to-back 75-bp hikes in June and July.

The August US consumer inflation report is set to be released overnight. In July, consumer inflation in the US slowed to 8.5% from an over 40-year high of 9.1% in June.

At home, the Bangko Sentral ng Pilipinas (BSP) is also in the middle of tightening its policy settings to rein in rising inflation and has raised benchmark rates by 175 bps since May. The Monetary Board’s next meeting is on Sept. 22.

BSP Governor Felipe M. Medalla earlier said the central bank may need to respond if the Fed remains hawkish, as its spillover effects on the market, especially the peso, could affect inflation.

Headline inflation eased to 6.3% in August from 6.4% in July. This brought the eight-month average to 4.9%, higher than the central bank’s 2-4% target but still below its 5.4% forecast for the year.

Meanwhile, the peso on Sept. 8 logged a new all-time low of P57.18 against the dollar following six straight sessions of decline. It has since recovered and is now back at the P56 level.

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

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles

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