Gov’t fully awards reissued bonds at lower rates

THE GOVERNMENT made a full award of the reissued seven-year Treasury bonds (T-bonds) it offered on Tuesday at a lower average rate on strong demand, with investors looking to lock in high yields as they expect further monetary easing here and in the United States.

The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the reissued seven-year bonds it auctioned off, with total bids reaching P79.666 billion or nearly triple the amount on offer.

This brought the total outstanding volume for the bond series to P386.7 billion, the Treasury said in a statement.

It added that it made a full award as the papers fetched an average yield that was lower than what was quoted at the previous auction and the comparable secondary market rate.

The reissued bonds, which have a remaining life of four years and 10 months, were awarded at an average rate of 5.772%. Accepted yields ranged from 5.76 to 5.78%.

The average rate of the reissued papers was 12.4 basis points (bps) lower than the 5.896% fetched for the series’ last award on July 1 and was also 60.3 bps below the 6.375% coupon for the issue.

This was likewise 2 bps lower than the 5.792% fetched for the same bond series and 4.2 bps below the 5.814% 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 Reference Rates data provided by the BTr.

“The T-bond average auction yield was lower amid the continued effects of the widely expected 25-bp BSP (Bangko Sentral ng Pilipinas) rate cut on Aug. 28,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Signals from monetary authorities that another reduction in benchmark rates is possible within this year “led more investors to lock in yields before they go down further in the coming months,” he said.

The Monetary Board last month lowered benchmark borrowing costs by 25 bps for a third consecutive meeting to bring the target reverse repurchase rate to 5%. It has now slashed rates by a cumulative 150 bps since the start of its easing cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. said that the policy rate is now at a “sweet spot” in terms of both inflation and output, but left the door open for one last cut this year to support growth if needed, which would likely mark the end of its current easing cycle.

The Monetary Board’s last two meetings this year are scheduled in October and December.

The government also saw high demand for its offering following the maturity of P288.659 billion worth of bonds on Tuesday as market players sought to reinvest their cash at “still much higher yields,” Mr. Ricafort said.

“Demand is noticeably higher compared to last week, likely due to the 10-60 maturity today encouraging market players to buy more than usual. Adding to this is the fall in yields, which corroborates the consistent increase in demand these past few weeks,” a trader said in a text message.

The drop in comparable US Treasury yields due to growing bets of a US Federal Reserve cut next week after weak jobs data recently also affected local rates, Mr. Ricafort added.

Traders’ expectations of more aggressive Fed easing are gradually increasing. Pricing of Fed funds futures on Tuesday implied an 11.6% probability of a jumbo 50-bp rate cut at the Fed’s September meeting, compared with an 11% chance on Monday, according to the CME Group’s FedWatch tool, with a cut of at least 25 bps viewed as a certainty, Reuters reported.

US job growth weakened sharply in August and the unemployment rate increased to a nearly four-year high of 4.3%, confirming that labor market conditions were softening and sealing the case for a Fed rate cut next week.

Investors were also bracing for US data revisions that could show the jobs market in worse shape than initially thought, shoring up the case for even deeper Federal Reserve interest rate cuts.

Economists anticipate a downward revision of as much as 800,000 jobs, which could signal that the Fed is behind the curve in efforts to achieve maximum employment.

Investors are now awaiting the US producer price data on Wednesday and consumer price data on Thursday for further clues into the Fed’s policy path.

The BTr is looking to raise P220 billion from the domestic market this month, or P100 billion via Treasury bills and P120 billion through 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