BTr fully awards reissued bonds
THE GOVERNMENT made a full award of the Treasury bonds (T-bonds) it offered on Tuesday as uncertainty over the Middle East conflict boosted demand for safer assets.
The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the reissued 20-year bonds as total bids for the tenor reached P70.365 billion or more than double the amount on offer.
The Auction Committee fully awarded the offering as the average yield was lower than prevailing secondary market levels, the Treasury said in a statement after the auction.
This brought the outstanding volume of the series to P443.3 billion.
The reissued bonds, which have a remaining life of five years and three months, were awarded at an average rate of 6.328%. Accepted yields ranged from 6.293% to 6.349%.
To accommodate the strong demand for the bonds, the BTr on Tuesday opened its tap facility window to raise P10 billion more through the papers.
The average rate of the reissued papers rose by 20 basis points (bps) from the 6.128% fetched for the series’ last award on Aug. 13, 2024 but was still 167.2 bps below the 8% coupon for the issue.
Meanwhile, this was 16.8 bps lower than the 6.496% fetched for the same bond series and 8.6 bps below the 6.414% quoted for the five-year paper — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.
The BTr fully awarded its bond offer as the average rate settled at the lower end of market expectations amid strong appetite, a trader said in a text message.
“The higher demand and lower yields are likely due to market reaction to overnight US Treasury yield movements, as tensions continue to escalate with the declaration of a US Naval blockade amid the Middle East Conflict,” the trader said.
Government-issued debt are generally considered to be safe assets as they are backed by the state.
The reissue’s average yield was lower than secondary market rates as sentiment improved after the declaration of a two-week ceasefire between the United States and Iran, causing a broad correction in asset prices despite peace talks collapsing over the weekend, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
However, he noted that the average rate was above the 5.717% fetched for the BTr’s latest five-year bond auction early in March as the war-driven oil shock continues to stoke inflation concerns, which could cause the Bangko Sentral ng Pilipinas to consider tightening its policy stance.
The US military began a blockade of Iran’s ports, angering Tehran and adding uncertainty around the crucial waterway, although hopes for dialogue to end the war provided some relief to oil markets where benchmark prices fell below $100 on Tuesday, Reuters reported.
After a breakdown of weekend talks in Islamabad between the two adversaries, a US official said there was continued engagement and forward motion on trying to get to an agreement. Pakistani Prime Minister Shehbaz Sharif also said efforts were still under way to resolve the conflict.
US President Donald J. Trump said Iran had been in touch on Monday and wanted to make a deal but that he would not sanction any agreement allowing Tehran to have a nuclear weapon.
Since the United States and Israel began the war on Feb. 28, Iran effectively shut the Strait of Hormuz to all vessels except its own, saying passage would be permitted only under Iranian control and subject to a fee. The fallout has been widespread, since nearly a fifth of the world’s oil and gas supplies flowed through the narrow waterway before the start of the conflict.
The US’ blockade has further clouded the outlook for global energy security and the supply of a vast array of goods that relies on petroleum, and has little, if any, international backing.
The BTr wants to borrow up to P248 billion from the domestic market this month, or P140 billion via Treasury bills and P108 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 with Reuters
