THE GOVERNMENT made a full award of the Treasury bonds (T-bonds) it offered on Tuesday as rates were aligned with secondary market levels, with the market expecting a less hawkish stance from the Bangko Sentral ng Pilipinas (BSP) amid slowing economic growth.
The Bureau of the Treasury (BTr) borrowed P30 billion as planned from the reissued 10-year bonds it auctioned off as tenders reached P51.92 billion.
It made a full award of the offer following the strong demand and as the average yield was broadly in line with the prevailing rate at the secondary market, it said in a statement.
The full award brought the outstanding volume for the bond series to P269.5 billion, it added.
The reissued papers, which have a remaining life of seven years and six days, were awarded at an average rate of 7.182%, with accepted yields from 7.1% to 7.22%.
This was up by 40.3 basis points (bps) from the 6.779 fetched for the series’ last award on June 16 and 55.7 bps above the 6.625% coupon rate for the issue. The same bonds were offered on July 14 but the BTr rejected all bids due to weak demand and as players asked for higher rates as a fresh flare-up in the Middle East conflict heightened inflation concerns.
Still, the awarded average rate on Tuesday was just 0.6 bp higher than the 7.176% fetched for the same bond series and 1.5 bps below the 7.197% quoted for the seven-year debt — the benchmark tenor closest to the remaining life of the papers on offer — at the secondary market before Tuesday’s auction, based on PHL Bloomberg Valuation Service Reference Rates data provided by the BTr.
The T-bond’s average yield came in line with secondary market levels as both July inflation and second-quarter gross domestic product (GDP) data came in weaker than expected, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
He said these reports may reduce the urgency for more BSP hikes beyond the increase expected later this month.
BSP Governor Eli M. Remolona, Jr. said on Monday that the central bank is ready to tighten its policy stance further to bring down still-elevated inflation, but said the soft second-quarter growth figure eases the pressure for a hike.
The Monetary Board in June raised benchmark interest rates by 25 bps for a second straight meeting to bring the policy rate to 4.75%.
Its next review is on Aug. 27.
Philippine GDP growth slowed to 2.3% in the second quarter from 5.4% in the same period last year and 2.8% in the preceding quarter. This was the slowest expansion since the fourth quarter of 2009, excluding the pandemic.
For the first semester, GDP growth averaged 2.6%, below the government’s 3.5%-4.5% full-year target.
Meanwhile, headline inflation eased to 6.2% in July from 6.4% in June. This was the slowest pace in four months or since 4.1% in March. The July print also fell within the BSP’s 5.6%-6.6% forecast for the month.
Year to date, inflation averaged 5%, above the central bank’s 3% target and 2%-4% tolerance band.
A trader said the auction result was within market expectations amid “decent” demand.
Government debt yields were trading slightly higher on Tuesday amid weak market activity due to geopolitical concerns, the trader added.
“Expect a slow grind lower on yields as the market stays cautious on Middle East developments.”
Meanwhile, Mr. Ricafort added that tempered US Federal Reserve rate hike bets following weak jobs data also affected domestic debt yields.
The BTr plans to raise P330 billion from the domestic market this month, or P200 billion via Treasury bills and P130 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion or 5.4% of GDP this year. — Aaron Michael C. Sy