THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday at lower rates amid strong demand on expectations that borrowing costs will continue to go down.
The Bureau of the Treasury (BTr) borrowed P25 billion as planned via the reissued 10-year bonds, with total bids for the tenor reaching P98.91 billion or nearly four times the amount on offer.
This brought the total outstanding volume for the bond series to P417.6 billion, the Treasury said in a statement.
It added that it made a full award of the bonds as the offer was oversubscribed and as the average rate fetched for the issue was lower than yields quoted at the previous auction and those for comparable benchmarks at the secondary market.
The reissued 10-year bonds, which have a remaining life of nine years and eight months, were awarded at an average rate of 5.997%. Accepted yields ranged from 5.995% to 6%.
The average rate of the reissued papers fell by 28.8 basis points (bps) from the 6.285% fetched for the series’ last award on July 15 and was also 37.8 bps below the 6.375% coupon for the issue.
This was likewise 2.5 bps below the 6.022% fetched for the same bond series and 1.3 bps lower than the 6.01% quoted for the 10-year debt at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.
The government fully awarded its T-bond offering as the average yield fetched for the series was at the low end of market expectations, a trader said in a text message.
“The high demand may have been due to the bond maturity this month, with a lot of investors having new funds to sink into various securities,” the trader said.
“Furthermore, the lower yield is just continuing the pattern of yields across the curve generally falling these past few days.”
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that about P500 billion in bonds matured on Aug. 12, leading to increased market liquidity even amid the government’s latest offering of retail Treasury bonds that ended last week.
Mr. Ricafort added that the government fully awarded the 10-year bonds it offered on Tuesday as they were met with robust demand and also fetched lower yields following dovish signals from the Bangko Sentral ng Pilipinas (BSP) chief.
BSP Governor Eli M. Remolona, Jr. said last week that a rate cut is “quite likely” at the Monetary Board’s Aug. 28 meeting as they expect inflation to remain within target this year.
He added that the central bank could deliver only two more rate cuts this year, including the one they could implement this month.
After next week’s review, the Monetary Board’s remaining meetings for this year are scheduled for Oct. 9 and Dec. 11.
The BSP has lowered benchmark interest rates by a cumulative 125 bps since August 2024, with the policy rate now at 5.25%. A cut next week would mark the BSP’s third consecutive easing move since April.
Philippine headline inflation slowed to a near six-year low of 0.9% in July, marking the fifth straight month that inflation settled below the central bank’s 2-4% annual target.
For the first seven months of the year, inflation averaged 1.7%.
The 10-year T-bonds fetched lower rates as comparable US Treasury yields recently hit multi-month lows on growing hopes of a September rate cut by the Federal Reserve, Mr. Ricafort added.
Money markets reflect an 83.6% chance of a quarter-point rate cut at the Fed’s meeting on Sept. 17, according to CME FedWatch, Reuters reported.
Markets are looking this week to the Federal Reserve’s annual symposium in Jackson Hole for any clues on the likely path of interest rates. Fed Chair Jerome H. Powell is due to speak on the economic outlook and the central bank’s policy framework.
The BTr is looking to raise P185 billion from the domestic market this month, or P125 billion through Treasury bills and P60 billion via T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — Aaron Michael C. Sy