Gov’t fully awards 10-year bonds as yield drops on easing inflation

THE GOVERNMENT made a full award of reissued 10-year Treasury bonds (T-bond) on Tuesday as the average yield plunged on the back of easing inflation expectations.

The Bureau of the Treasury (BTr) raised P20 billion as planned from its T-bond offer yesterday after receiving overwhelming bids worth P54.603 billion, almost triple the amount it wanted to raise.

The 10-year papers, which carry a coupon rate of 6.875%, fetched an average rate of 6.196% yesterday, 63.3 basis points lower than the 6.829% fetched when the instruments were last offered on Jan. 8.

At the secondary market on Tuesday, the 10-year IOUs were quoted at 6.183%, based on the PHP Bloomberg Valuation Service Reference Rates.

Following the auction, Deputy Treasurer Erwin D. Sta. Ana said the average yield of the 10-year bonds dropped sharply as investors started to price in expectations of decelerating inflation, which wasn’t clear yet when the 10-year securities were last sold.

“[Last] January 8, I think the market was actually just looking for how inflation would be moving forward. So now that we have seen inflation falling within the band already, then it just shows in the rates for this auction,” Mr. Sta. Ana told reporters yesterday.

Headline inflation in February stood at 3.8%, coming from the 4.4% print in January and easing for the fourth straight month due to milder price increases in food and non-alcoholic beverages.

Last month’s inflation rate also landed within the government’s 2-4% target range for the year.

“And then there’s also…news about possible easing by the BSP (Bangko Sentral ng Pilipinas) given the pronouncements of Gov[ernor Benjamin E.] Diokno in his interview. So we think those are the catalysts for these rates,” Mr. Sta. Ana added.

Given “decelerating” inflation in the country, Mr. Diokno said last Friday that there is an opportunity for the BSP to ease monetary policy settings, although he noted that any adjustments in interest rates should be datadependent and that timing will be the issue.

Mr. Sta. Ana also noted that the Treasury is in a “comfortable” cash position following the conclusion of its five-year retail Treasury bond (RTB) sale.

“From a cash stand point, it’s actually better for us because of the settlement. We’re talking about P235.9 [billion], almost P236 billion in fresh cash for us. And then we had a full award so we are in a good position,” he said when sought for comment on why the BTr did not open its tap facility yesterday despite excess demand.

The Treasury raised P235.935 billion from the 22nd offering of RTBs, which were offered the institutional and individual investors within a two-week period that ended last Friday. National Treasurer Rosalia V. De Leon said tenders received for the RTBs were “much higher.”

A bond trader said yesterday’s auction results were within market expectations.

“The results were in line with the expectations, since the market was looking at a rate between 6.15-6.25%. The secondary market was near that range,” the trader said in a phone interview.

The government is set to borrow P360 billion from the domestic market this quarter. Some P240 billion will be borrowed through 12 weekly Treasury bill auctions, while P120 billion worth of T-bonds will also be issued through six fortnightly auctions. •