Gov’t partially awards reissued 25-year bonds

THE GOVERNMENT partially awarded the reissued 25-year Treasury bonds (T-bonds) it offered on Tuesday as investors wanted higher rates amid expectations of further tightening by the central bank before the year ends.

The Bureau of the Treasury (BTr) raised just P26.139 billion from its offer of 25-year papers on Tuesday, less than the programmed P35 billion, even as total bids reached P46.988 billion.

This brought the total outstanding volume for the bond series to P88.3 billion, the BTr said.

The bonds, which have a remaining life of 12 years and 11 months, were awarded at rates ranging from 7.625% to 8%, bringing the average to 7.887%, which was 3.8 basis points (bps) lower than the 7.925% quoted for the bond when it was first offered on Sept. 28, 2010 and also 11.3 bps below the 8% coupon for the issue. 

However, this was 69.38 bps above the 7.1932% quoted for the same bond series at the secondary market and 47.23 bps higher than the 7.4147% yield seen for the 10-year tenor at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the auction saw “decent demand” and that higher bids were driven by hawkish statements from the chiefs of the Bangko Sentral ng Pilipinas (BSP) and the Finance department.

A trader said the range of awarded rates came in within expectations as the market is gearing up for further rate hikes at home and abroad.

“Although, note that the high rate reached 8%, which can be viewed as an aggressive award on the part of BTr,” the trader added in a text message.

Likewise, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message that investors wanted higher yields in anticipation of further tightening.

“The Treasury bond average auction yield went up to 7.887% amid recent signals on local policy rate hikes for the rest of 2022, about +0.50 or +0.75 on the next rate-setting meeting on Nov. 17, 2022 to help stabilize both the peso exchange rate and overall inflation amid another large rate hike by the Fed,” Mr. Ricafort added.

BSP Governor Felipe M. Medalla on Monday said the central bank may need to raise rates by more than 100 bps at its last two meetings this year, depending on the Fed’s aggressiveness.

Finance Secretary Benjamin E. Diokno, a member of the BSP’s policy-setting Monetary Board, also said on Monday that benchmark rates should be raised by 100 bps before the year ends to help support the peso, noting this could be done via two 50-bp hikes or a 75-bp increase at the Nov. 17 meeting and a 25-bp hike at the Dec. 15 review.

The BSP has so far raised key rates by 225 bps this year to tame inflation and support a weakening currency that has added to price pressures.

Meanwhile, the Fed is likely to raise rates by 75 bps for a fourth straight time at its policy-setting meeting on Nov. 1-2, adding to 300 bps worth of hikes since March.

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

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