Treasury fully awards reissued seven-year bonds

THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday as its average rate was broadly in line with comparable secondary market benchmarks, with headline inflation expected to have picked up only modestly last month.

The Bureau of the Treasury (BTr) raised P30 billion as planned from the reissued seven-year bonds as total bids reached P57.491 billion, or nearly twice the amount placed on the auction block.

The Treasury said it made a full award as the average rate fetched for the issue was lower than the prevailing five-year benchmark.

This brought the total outstanding volume for the series to P356.7 billion, it said in a statement.

The reissued bonds, which have a remaining life of five years and 25 days, were awarded at an average rate of 5.896%. Accepted bid yields ranged from 5.865% to 5.918%.

The average rate for the reissued papers inched up by 0.9 basis point (bp) from the 5.887% fetched for the series’ last award on June 3, but was 47.9 bps lower than the 6.375% coupon seen for the original issuance.

This was also 4.1 bps below the 5.937% quoted for the five-year bond but was 0.8 bp higher than the 5.888% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The T-bonds fetched yields that were broadly in line with those quoted for the previous issuance and secondary market levels amid expectations of a slight pickup in June headline inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This, as the 12-day conflict between Israel and Iran still resulted in a net increase in local pump prices and caused a sharp decline in the peso, which could have driven up import costs and overall inflation last month, he said.

A trader said that the issue’s average rate was only slightly higher than the previous award amid the recent rate cut delivered by the Philippine central bank and subsiding tensions in the Middle East.

Inflation may have quickened slightly in June, with the spike in fuel costs seen to have been offset by broadly stable food prices, analysts said.

A BusinessWorld poll of 17 analysts yielded a median estimate of 1.5% for the June consumer price index (CPI), accelerating from the 1.3% in May but still below the Bangko Sentral ng Pilipinas’ (BSP) 2-4% annual target.

If realized, this would be the fastest clip in three months or since 1.8% in March. It would also mark the first pickup since December as the CPI has been on a downtrend since February. Still, this would be slower than the 3.7% print in June 2024.

The median estimate is also well within the BSP’s June forecast of 1.1% to 1.9%.

The Iran-Israel conflict and the US’ decision to intervene have led to sharp swings in oil prices this month, with Brent prices touching $81.40 before falling to settle at $67.14 after the ceasefire, Reuters reported.

Analysts have marginally lifted their oil price forecasts after the flare-up of tensions in the Middle East, but rising OPEC+ supply and a tempered demand outlook continue to weigh on crude, a Reuters poll showed on Monday.

A survey of 40 economists and analysts in June forecast Brent crude will average $67.86 per barrel in 2025, up from May’s $66.98 forecast, while US crude is seen at $64.51, above last month’s $63.35 estimate. Prices have averaged roughly $70.80 and $67.50 so far this year respectively, as per LSEG data.

The conflict also caused the peso to weaken to the P57 level mid-June, hitting multi-month lows, as the rise in global crude prices fanned inflation concerns, with the Philippines being a net oil importer. The Iran-Israel ceasefire announced June 24 has brought some relief to the currency, which is now back at the P56 range.

The BTr wants to raise P250 billion from the domestic market in July, or P125 billion through Treasury bills and P125 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — A.M.C. Sy with Reuters