‘Overwhelming’ demand cues full award for 10-year T-bonds

THE Bureau of the Treasury fully awarded P35 billion in reissued 10-year Treasury bonds (T-bonds) as investors flocked to Tuesday’s auction to take advantage of the attractive yield.

With a remaining term of nine years and 11 months, the security fetched an average rate of 6.865 percent, lower than the original coupon rate of 7.25 percent set on its first issue last month as well as the secondary market benchmark rates.

The average rate is below the Bloomberg Valuation Service Reference Rates for the 10-year tenor and the security itself at 6.916 percent and 6.969 percent, respectively.

In a separate message to the Businessmirror, National Treasurer Rosalia V. De Leon attributed the decline in the average rate to the overwhelming investor demand for the debt paper during the auction, with the market wanting to secure high rates given that the Bangko Sentral ng Pilipinas is expected to raise interest rates again.

The auction was more than thrice oversubscribed, with total bids reaching P123.3 billion.

“Strong demand is an understatement in the auction,” De Leon told reporters. “Appetite for long end coming from good yield pick-up, especially for retirement funds to lock in high rates.”

Sought whether this would mean that the Treasury would opt to offer longer tenors under its borrowing program moving forward, De Leon said they are “Inclined to always stretch maturity subject to reasonable rate.”

The Treasury also decided to open the tap facility window to all 11 government securities dealers-market makers for an additional offering of P20 billion.

Last week, the BSP surprised markets with an aggressive rate hike of 75 basis points in a bid to temper inflation

With this, the interest rate on BSP’S overnight reverse repurchase facility is now 3.25 percent. Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 2.75 percent and 3.75 percent, respectively.

Inflation in June hit its highest in 3 years at 6.1 percent, bringing the year-to-date average to 4.4 percent. The BSP’S target inflation range for this year is 2 to 4 percent.

Even before the off-cycle hike of 75 basis points last Thursday, the BSP has already resorted to back-to-back 25-basis point hikes in its May and

June meetings.

But the BSP seems not to be done yet as its Governor Felipe M. Medalla earlier said they still have room to raise interest rates.

The government’s economic team under the Marcos administration is now expecting inflation to remain “elevated” in the coming months as fuel and food prices rose as a result of the ongoing Russiaukraine war and supply chain disruptions.

The Cabinet-level Development Budget Coordination Committee earlier adjusted upward its inflation forecast for this year to 4.5 to 5.5 percent, higher than the 3.7 to 4.7 percent projection adopted by former President Duterte’s economic team in May this year.

For this month, the government is set to borrow P200 billion from the local debt market.

As of end-may, the national government’s outstanding debt dipped to P12.5 trillion from a record-high of P12.76 trillion as of end-april due to its repayment of a P300 billion short-term, zero-interest loan from BSP.