THE GOVERNMENT made a partial award of reissued seven-year Treasury bonds (T-bonds) offered yesterday ahead of the US Federal Reserve’s policy meeting this month and developments in the US-China trade war.

The Bureau of the Treasury raised just P10.399 billion via the seven-year bonds yesterday out of the programmed P20-billion offering even as total bids reached P22.149 billion.

The debt papers fetched an average rate of 4.503%, lower than the 4.845% quoted during the July 16 auction. The bonds’ coupon is at 6.25%.

Had the government made a full award of the offer, the average rate would have ended at 4.569%.

The last time the Treasury made a partial award of government securities was on April 24 when it raised just P4.26 billion out of a planned P10-billion issuance of reissued 20-year T-bonds.

At the secondary market on Tuesday, the seven-year debt papers were quoted at 4.561%, according to the PHP Bloomberg Valuation Service Reference Rates.

Deputy Treasurer Erwin D. Sta Ana said the lower-than-expected tenders and higher rates seen yesterday reflect the market’s “wait and see” attitude ahead of the two-day rate-setting meeting of the Federal Open Market Committee (FOMC) next week.

“It’s basically a reflection of a wait and see attitude from the participants because you know, FOMC is around the corner, US Treasuries are increasing — overnight, you can see some increases in the 10-year [US Treasury], so that actually brought about the results. Less ‘yung tenders (The tenders were lower than usual) then the rates spiked up a bit,” Mr. Sta Ana told reporters after Tuesday’s auction.

A bond trader said the auction result was expected amid expected improvements in the trade relations between the United States and China.

“This was kinda expected due to recent sell-off in US Treasuries as risk sentiment temporarily improved given developments on trade talks or, say, lack of bad news,” the bond trader said in a phone message yesterday.

The US Federal Reserves policy-making FOMC will hold a rate-setting meeting on Sept. 17-18.

The Fed reduced interest rates by 25 basis points in July, its first rate cut since 2008.

Fed Chair Jerome Powell said Friday in Zurich that the US Federal Reserve will continue to act “as appropriate” to sustain the economic expansion in the world’s biggest economy, sticking to a phrase that financial markets have read as signaling further interest-rate reductions ahead.

Mr. Powell said policy makers will be closely watching geopolitical risks, financial conditions, and other incoming economic data as they weigh what to do.

Meanwhile, US Treasury yields rose to three-week highs on Monday, in line with gains in the European bond market, as risk appetite improved amid easing US-China trade tensions and expectations of less-aggressive action from the European Central Bank this week.

In afternoon trading, US benchmark 10-year Treasury note yields rose to 1.63% from 1.55% late on Friday. Early in the session, 10-year yields hit a three-week high of 1.635%.

Since the beginning of the year, 10-year yields have fallen more than 100 basis points.

On the other hand, China and the United States last week agreed to hold high-level talks in early October in Washington, cheering investors hoping for a trade war thaw as new US tariffs on Chinese consumer goods chip away at global growth.

The government is set to borrow P230 billion from the domestic market this quarter through Treasury bills and T-bonds.

It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga with Reuters