Reissued bonds fully awarded amid easing bets

By Aaron Michael C. Sy, Reporter

THE GOVERNMENT on Tuesday fully awarded reissued bonds at an auction, as the average rate inched up from the note’s last sale, amid growing market confidence in the Bangko Sentral ng Pilipinas’ (BSP) easing cycle.

The Bureau of the Treasury (BTr) raised P30 billion as planned via the reissued seven-year bonds, as total bids reached P69.08 billion, well above the amount on offer.

This brought the outstanding volume for the series to P219.7 billion, the Treasury said in a statement.

The bonds, which have a remaining life of four years and eight months, were awarded at an average rate of 6.058%. Accepted yields were 5.99% to 6.075%.

The average rate of the reissued paper fell by 4.9 basis points (bps) from 6.107% on Aug. 6. Still, this was 44.2 bps lower than the 6.5% coupon rate.

However, this was 0.4 bp above the 6.054% for the same bond series and 0.8 bp higher than the 6.05% quoted for the five-year bond — the tenor closest to the remaining life of the debt — at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

“We continue to see investors trying to take advantage of auctions to load their positions as they grow confident on the path of the BSP’s easing cycle,” a trader said in a text message.

The Philippine central bank last month cut benchmark interest rates for the first time in almost four years amid an improving inflation and economic outlook. Governor Eli M. Remolona, Jr. has signaled at least one more cut before the year ends.

The Monetary Board on Aug. 15 cut its policy rate by 25 bps to 6.25% from a 17-year high of 6.5%. Board members will meet again on Oct. 17 and Dec. 19.

Bets on the BSP’s easing cycle were also bolstered by the softer-than-expected inflation data for August, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Inflation eased to a seven-month low of 3.3% in August from 4.4% in July and 5.3% a year earlier, making the case for the central bank to cut key rates further to bolster economic growth.

This was within the BSP’s 3.2-4% forecast for the month and was well below the 3.7% median estimate of 15 analysts in a BusinessWorld poll.

In the first eight months, inflation averaged 3.6%, slightly above the BSP’s 3.4% baseline forecast but within its 2-4% annual target.

The Treasury bureau wants to raise P195 billion from the domestic market this month — P80 billion through Treasury bills and P115 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product for this year.