Gov’t fully awards T-bond offer

THE GOVERNMENT made a full award of the dual-tenor Treasury bonds (T-bonds) it offered on Tuesday with higher yields as improving sentiment over the war in the Middle East drove demand for risk assets.

The Bureau of the Treasury (BTr) raised P30 billion as planned via the dual-tranche T-bond auction, as total bids for both tenors reached P79.747 billion.

Broken down, the Treasury raised the programmed P20 billion from the reissued seven-year bonds it auctioned off as bids totaled P46.362 billion or more than twice the target.

The papers, which have a remaining life of four years and two months, fetched an average rate of 7.43%, with bids ranging from 7.3% to 7.49%.

This was 68.9 basis points (bps) higher than the 6.741% fetched for the series’ last award on April 28 and also 105.5 bps above the 6.375% coupon for the issue.

The average yield was 8.4 bps above the 7.346% fetched for the same bond series and also 8.2 bps higher than the 7.348% quoted for the four-year bond, the benchmark tenor closest to the remaining life of the issue, at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

For the reissued 10-year T-bonds, the government sold P10 billion as planned as bids totaled P32.385 billion, or more than thrice the amount placed on the auction block.

The notes, which have a remaining life of nine years and nine months, were awarded at an average rate of 7.602%, with accepted yields at 7.5% to 7.688%.

The average rate of the issue rose by 74.5 bps from the 6.857% fetched for the series’ last award on April 28 and was 167.7 bps above its 5.925% coupon.

This was likewise 1.5 bps above the 7.587% fetched for the same bond series and 5.2 bps higher than the 7.55% quoted for the 10-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.

The T-bonds fetched average rates well within market expectations due to improving sentiment following signals of the possible reopening the Strait of Hormuz, a trader said in a text message.

“Yields were awarded lower relative to previous weeks, alongside the higher demand from investors, which aligns with yesterday’s improved sentiment as tensions in the Middle East conflict seem to have improved.”

“The BTr was really forced to award the higher bids as the government needs the funding,” Sun Life Investment Management and Trust Corp. President Michael Gerard D. Enriquez added in a Viber message.

However, signals of further rate hikes from the Bangko Sentral ng Pilipinas (BSP) due to persistent inflationary risks stemming from the Middle East war, coupled with expectations of a more “hesitant” US Federal Reserve, are keeping investors cautious, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. said last week that they are considering a more aggressive policy stance to help curb spiraling prices as the Middle East conflict continues to stoke inflation.

He said the Monetary Board could hike borrowing costs for a second straight time, possibly before the June 18 policy meeting, as persistent supply shocks have raised the risk of “falling behind the curve.”

The BSP on April 23 delivered its first rate hike in over two years or since October 2023, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%.

Tuesday’s auction was the last for the month. The government raised P203.288 billion out of its P268-billion borrowing program for May as weak demand and surging yields caused the BTr to reject some bids at several Treasury bill (T-bill) and T-bond auctions.

For June, the government will again look to raise P268 billion from the domestic market, or P128 billion via T-bills and P140 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy