Yields on reissued bonds drop amid strong investor demand

THE GOVERNMENT fully awarded the dual-tenor Treasury bonds (T-bonds) it auctioned off on Tuesday as strong demand helped pull down rates.

The Bureau of the Treasury (BTr) raised a combined P35 billion as planned from its dual-tranche offering of T-bonds as demand reached P138.118 billion or nearly four times the amount placed on the auction block.

Broken down, the government borrowed the programmed P20 billion via reissued seven-year bonds that have a remaining life of four years and eight months as total bids were at P71.687 billion or over thrice the offer volume.

The bonds were awarded at an average rate of 5.649%, with accepted bid yields ranging from 5.635% to 5.658%. This was 12.3 basis points (bps) lower than the 5.772% fetched for the series’ last award on Sept. 9 and was also 72.6 bps below the 6.375% coupon for the issue.

The average yield was likewise 5.6 bps lower than the 5.705% quoted for the five-year bond, or the benchmark tenor closest to the remaining life of the papers on offer, and 1.3 bps below the 5.662% 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 BTr also sold P15 billion as planned in reissued 10-year bonds that have a remaining life of nine years and five months as the offering drew tenders worth P66.431 billion or more than four times the amount auctioned off.

The notes were awarded at an average yield of 5.894%, with accepted tenders carrying rates of 5.889% to 5.898%. This was 19.4 bps below the 6.043% quoted for the same bond series when they were last sold on Oct. 7 and 48.1 bps lower than the 6.375% coupon for the issuance.

The average yield was also 5 bps lower than the 5.944% quoted for the 10-year debt and 2.9 bps below the 5.923% fetched for the same bond issue at the secondary market before the auction, BVAL Reference Rates data showed.

The government fully awarded both T-bond tenors as strong demand for the offering led to lower average yields, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

This came amid bets of further monetary easing by the Bangko Sentral ng Pilipinas (BSP) amid expectations of within-target inflation and weak economic growth, he said.

Last month, the Monetary Board cut benchmark borrowing costs by 25 bps for a fourth straight meeting, bringing the policy rate to 4.75%.

It was now trimmed rates by 175 bps since its easing cycle began in August 2024.

BSP Governor Eli M. Remolona, Jr. has said that more cuts are possible until next year as they want to support the economy amid weakening growth prospects as a graft scandal involving state flood control and infrastructure projects has dented investor confidence.

Last week, Monetary Board member Benjamin E. Diokno said in a Bloomberg Television interview that a 25-bp cut is likely at their Dec. 11 meeting, with further reductions possible as the economic fallout from the corruption mess may last until end-2026.

Mr. Ricafort added that broad market volatility due to both domestic and external concerns has benefited safer assets like government securities.

The Philippine Stock Exchange index has closed below the 6,000 mark for the past seven sessions. On Tuesday, it ended at 5,867.04, down by 10.14% or 661.75 points from its end-2024 close of 6,528.79.

The BTr wants to raise P158 billion from the domestic market this month, or P88 billion via Treasury bills and P70 billion through T-bonds.

The government borrows from local and foreign sources to finance its budget deficit, capped at P1.56 trillion or 5.5% of gross domestic product this year. — BVR with a report from K.K. Chan