Gov’t fully awards dual-tenor bond offering at mixed yields

THE GOVERNMENT made a full award of the dual-tranche Treasury bonds (T-bonds) it auctioned off on Tuesday at mixed rates amid market preference for papers at the belly of the curve on expectations of further monetary easing by the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The Bureau of the Treasury (BTr) raised P35 billion as planned via its dual-tenor T-bond offer as total bids reached P77.776 billion, or more than double the amount placed on the auction block.

Broken down, the Treasury borrowed the programmed P20 billion via the reissued 10-year bonds that have a remaining life of six years and 10 months, with total bids reaching P55.519 billion or almost three times the amount on offer.

This brought the total outstanding volume for the bond series to P505.6 billion, the BTr said in a statement, adding that the average yield fetched was lower than both the rate quoted at the previous auction and for the seven-year benchmark at the secondary market.

The bonds were awarded at an average rate of 5.798%, and accepted yields ranged from 5.75% to 5.805%. This was 14.1 basis points (bps) lower than the 5.939% fetched for the series’ last award on Sept. 2 and was also 95.2 bps below the 6.75% coupon for the issue.

The average yield was also 1.3 bps lower than the 5.811% quoted for the seven-year bond — the benchmark tenor closest to the remaining life of the papers on offer — but 0.7 bp above the 5.791% fetched for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

Meanwhile, the government also raised P15 billion as planned from its offering of reissued 25-year T-bonds that have a remaining life of 24 years and three months, with total bids reaching P18.62 billion.

This brought the total outstanding volume for the bond series to P105.1 billion, the BTr said.

The bonds were awarded at an average rate of 6.51%, with accepted yields from 6.4% to 6.6%. This was 13.6 bps higher than the 6.374% fetched for the series’ last award on Aug. 27 and was 13.5 bps above the 6.375% coupon for the issue.

The average rate was also 8.9 bps above the 6.421% seen for the same bond series and 11 bps higher than the 6.4% quoted for the 25-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.

The Treasury fully awarded the bonds as both tenors fetched ample demand, a trader said in a text message.

“Demand for the 10-year bond was more prevalent than the 25-year bond, likely due to the current preference in tenors on the belly of the curve. Furthermore, the lack of activity in the market beforehand may have also contributed to the middling demand for 25-year bond,” the trader said.

The reissued 10-year bond’s average yield went down as it was met with strong appetite on expectations of more rate cuts from both the BSP and the Fed in the coming months, while the 25-year paper fetched a higher rate amid weak demand as investors remain hesitant to lock in their funds in longer tenors amid lingering uncertainty about the global economy amid changing trade policies, Rizal Commercial Parking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This month, the BSP cut benchmark borrowing costs by 25 bps for a fourth straight meeting, bringing the target repurchase rate to 4.75%. It has now cut rates by a total of 175 bps since it began its easing cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. has signaled further easing, possibly until next year, as they want to help support the economy due to a softer growth outlook as governance issues related to state infrastructure projects have weighed on investor confidence.

Meanwhile, the Fed last month reduced its target rate by 25 bps points to bring it to the 4%-4.25% range. Fed Chair Jerome H. Powell last week hinted at more cuts as they seek to balance the US job market’s weakness with above-target inflation.

The BTr is looking to raise P180 billion from the domestic market this month, or P110 billion via Treasury bills and P70 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