Treasury makes full award of bond offer on strong demand

THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it auctioned off on Tuesday as its average rate dropped on strong demand from the market.

The Bureau of the Treasury (BTr) borrowed P35 billion as planned from reissued 10-year T-bonds, which have a remaining life of five years and 10 months.

Total bids for Tuesday’s offering stood at P65.091 billion, nearly twice as much as the auction volume and also more than the P50.25 billion in tenders seen when the same notes were last offered on March 9.

The 10-year bonds fetched an average rate of 3.185%, down 54.7 basis points (bps) from 3.732% previously.

At the secondary market, before the auction, the 10-year tenor fetched a yield of 3.8374%, the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website showed.

The BTr opened its tap facility to raise another P5 billion via the debt papers to accommodate the excess demand and take advantage of the low yield.

National Treasurer Rosalia V. de Leon said investor demand was boosted by recycled funds after some government issuances matured recently.

The market also wants higher returns so they are turning to long-dated bonds for yield pickup, Ms. De Leon added.

Meanwhile, a bond trader said the result of Tuesday’s 10-year T-bond auction fell within market expectations “as players are now on a wait-and-see mode ahead of the Monetary Board meeting.”

The Bangko Sentral ng Pilipinas (BSP) will likely keep benchmark interest rates steady on Thursday to support the “fragile” economic recovery, with inflation improving on the back of government initiatives to ease supply issues, analysts said.

A BusinessWorld poll held last week showed 14 out of 16 analysts expect the central bank to retain its key policy rate at its record low of 2% at the Monetary Board’s fourth policy meeting for this year on June 24.

Analysts said it is crucial for the BSP to retain its accommodative stance in the meantime as the economy’s rebound from the impact of the coronavirus pandemic still has a long way to go.

The BSP slashed benchmark rates by a cumulative 200 bps last year. Borrowing costs have been at record lows since the Monetary Board’s last adjustment, which was a 25-bp cut in November.

Meanwhile, headline inflation rose by 4.5% for the third straight month in May. While this was slower than the two-year high of 4.7% in February, it exceeded the central bank’s 2-4% target range.

Year to date, headline inflation averaged at 4.4% as of May. The BSP expects inflation for 2021 and 2022 to reach 3.9% and 2.8%, respectively, within target but quicker than the 2.6% print in 2020.

The BTr wants to raise P215 billion from the local debt market this month: P75 billion via weekly offers of Treasury bills and P140 billion from weekly auctions of T-bonds.

The government is looking to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit that is expected to hit 9.3% of the country’s economic output. — Beatrice M. Laforga