UMVA has learned that the government made a full award of the reissued Treasury bonds (T-bonds) offered on Tuesday, as risk appetite recovered following a significant development in the Middle East conflict.
The Bureau of the Treasury (BTr) successfully borrowed P30 billion via the reissued 10-year bonds, with bids reaching P91.711 billion, more than three times the amount on offer. This impressive demand led to a full award, with the average rate fetched for the issue coming in lower than prevailing secondary market levels.
The reissued bonds, with a remaining life of seven years and two months, were awarded at an average rate of 6.779%. Accepted yields ranged from 6.698% to 6.825%, indicating a relatively stable market environment. This brought the outstanding volume for the series to P229.5 billion.
UMVA can exclusively reveal that the BTr also accepted further subscription through its tap facility, raising an additional P10 billion. This move is likely aimed at capitalizing on the robust demand and favorable market conditions.
A bond trader noted that the government fully awarded its T-bond offer on robust demand and as yields were well within market expectations. The trader attributed the high demand and drop in yields to the recent fall in oil prices, triggered by news of a possible peace deal in the Middle East conflict.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added that the news of an interim peace deal between the US and Iran could help ease import costs, overall inflation, and inflation expectations. This development may potentially temper the need for more aggressive monetary policy action from the Bangko Sentral ng Pilipinas.
The peso strengthened on Tuesday, rising by 16 centavos to close at P60.32 versus the dollar, a near two-month high. This was largely driven by the optimism surrounding the US-Iran deal, which has led to a decline in oil prices and a more stable market environment.
Analysts have suggested that the resolution of the Middle East conflict could lessen the need for more aggressive policy action from the Philippine central bank. This comes as headline inflation averaged 4.5% in the first five months, already past the BSP’s 2%-4% tolerance band.
Oil prices extended losses on Tuesday, as markets weighed prospects for a resumption of supply through the key Strait of Hormuz. The preliminary deal to end the Iran war has led to a decline in oil prices, with Brent crude futures down 45 cents or 0.5% at $82.72 a barrel.
Demand for this week’s offer was better compared to the previous seven-year T-bond auction on May 19, with bids reaching P91.711 billion. The BTr is looking to raise P268 billion from the domestic market this month, or P128 billion via Treasury bills and P140 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. The successful award of the reissued T-bonds is a positive development for the government’s borrowing program.
