Reissued seven-, 10-year bonds fetch lower rates

THE GOVERNMENT made a full award of the dual-tranche Treasury bonds (T-bonds) it auctioned off on Tuesday at lower rates amid strong demand amid improved market sentiment after S&P Global Ratings affirmed the Philippines’ investment-grade rating.

The Bureau of the Treasury (BTr) raised a combined P35 billion as planned via its dual-tenor offering of bonds as total demand reached P125.623 billion or over three times the amount placed on the auction block.

The government fully awarded both tranches as the bonds fetched average yields that were below those quoted for the papers when they were last reissued and prevailing secondary market rates, the Treasury said in a statement.

Broken down, the Treasury borrowed the programmed P20 billion via the reissued seven-year bonds with a remaining life of two years and four months, with total bids reaching P59.776 billion or nearly thrice the amount offered.

This brought the total outstanding volume for the bond series to P396.4 billion, the BTr said.

The seven-year bonds were awarded at an average rate of 5.256%, with accepted yields ranging from 5.25% to 5.259%. This was 44.2 basis points (bps) lower than the 5.698% fetched for the series’ last award on Oct. 7 but was 163.1 bps above the 3.625% coupon for the issue.

The average yield was also 8.4 bps lower than the 5.34% quoted for the three-year bond, or the benchmark tenor closest to the remaining life of the papers on offer, and 1.9 bps below the 5.275% 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 via reissued 10-year bonds that have a remaining life of nine years and four months as the tenor attracted P65.847 billion in tenders or more than four times the amount auctioned off.

This brought the outstanding volume for the bond series to P492.6 billion, the Treasury said.

The 10-year debt papers were awarded at an average yield of 5.876%, with accepted bids carrying rates of 5.855% to 5.88%. This was 1.8 bps below the 5.894% average quoted for the same bond series when they were last sold on Nov. 4 and 49.9 bps lower than the 6.375% coupon for the issuance.

The average yield was also 7.1 bps lower than the 5.947% seen for the 10-year debt and 1.2 bps below the 5.888% fetched for the same bond issue at the secondary market before the auction, PHP BVAL Reference Rates data showed.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government fully awarded its T-bond offer as rates for both tenors went down amid strong demand, with S&P’s latest rating action boosting market sentiment as this could potentially lead to lower borrowing costs.

S&P last week affirmed its long-term “BBB+” and short-term “A-2” credit ratings for the Philippines as well as its “positive” outlook as it sees the country’s long-term growth remaining strong despite the ongoing flood control graft scandal.

Appetite for the offer was strong as this was the BTr’s last bond offer for the year, with no more large borrowings expected before the yearend, he said, adding that volatility in the stock and foreign exchange markets may have caused investors to flock to safer assets like government debt.

Mr. Ricafort said that prospects of further policy easing from both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve also helped bring yields down.

BSP Governor Eli M. Remolona, Jr. has said that a fifth straight 25-bp cut is possible at the Monetary Board’s Dec. 11 policy meeting, with further reductions until next year also on the table, as they want to support the Philippine economy amid weakening growth prospects as a graft scandal involving state flood control and infrastructure projects has dented investor confidence.

The Philippine central bank has lowered benchmark interest rates by 175 bps since it began its easing cycle in August 2024, with the policy rate now at 4.75%.

Meanwhile, markets widely expect a second straight reduction at the Fed’s Dec. 9-10 meeting, but the policy outlook for next year as the state of the US economy remains fragile.

The BTr wants to raise P101 billion from the domestic market this month, or P66 billion in Treasury bills and P35 billion in 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. — Katherine K. Chan