THE GOVERNMENT made a partial award of the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday as investors asked for higher rates amid global market volatility due to geopolitical concerns.
The Bureau of the Treasury (BTr) raised just P27.603 billion from its offering of reissued 10-year bonds, below the P30-billion plan, even as total bids reached P55.422 billion or nearly twice the amount placed on the auction block.
This brought the total outstanding volume for the series to P367.6 billion, the Treasury said in a statement.
“The average yield for the security… was capped at 6.428% due to muted market demand and higher submitted bid rates,” it said.
The bonds, which have a remaining life of nine years and 10 months, were awarded at an average rate of 6.428%. Accepted bid yields ranged from 6.375% to 6.45%.
The average rate for the reissued papers rose by 20.2 basis points (bps) from the 6.226% fetched for the series’ last award on May 20 and was also 5.3 bps higher than the 6.375% coupon for the original issuance.
This was likewise 4.8 bps above the 6.38% quoted for the 10-year bond and 2 bps higher than the 6.408% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.
The government opted to make a partial award of its T-bond offer on Tuesday as “bid rates are too high considering the expected rate cut on Thursday,” a trader said in a text message.
The Bangko Sentral ng Pilipinas (BSP) is widely expected to deliver a second straight 25-bp rate cut at its policy meeting on Thursday amid cooling inflation.
A BusinessWorld poll showed that 15 out of 16 analysts see the Monetary Board reducing the target reverse repurchase rate by another 25 bps to 5.25% at this week’s review from the current 5.5%.
The BSP in April resumed its easing cycle with a 25-bp cut following a surprise pause in February amid uncertainties stemming from the Trump administration’s trade policies.
The Monetary Board has now reduced borrowing costs by a total of 100 bps since beginning its easing cycle in August 2024. BSP Governor Eli M. Remolona, Jr. has said that they may cut rates two more times this year in “baby steps” or increments of 25 bps amid a benign inflation outlook.
“The 10-year Treasury bond average auction yield was higher, … largely attributed to the Israel-Iran attacks that led to higher global crude oil prices and a higher US dollar-peso exchange rate, both of which could lead to some pickup in import prices and overall inflation,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Comparable US Treasury rates were also higher due to the conflict in the Middle East, he added.
Oil prices rose on Tuesday as fighting between Israel and Iran entered its fifth day, sowing fears of a broader regional conflict, Reuters reported.
US President Donald J. Trump urged everyone to evacuate Tehran and cut short his visit to the Group of Seven summit in Canada, while a separate report said he had asked for the National Security Council to be prepared in the situation room.
The developments sparked a wave of risk-off moves in which S&P 500 futures fell 0.4% and European futures dropped 0.7%.
Crude prices were last up 0.7% at about $73 a barrel, after having briefly jumped more than 2% earlier in the session.
Heightened uncertainty drove investors to traditional safe-haven assets. US Treasury yields rose after initially falling on the reports of Iran’s outreach to Israel, with the 10-year notes yielding 4.452% from 4.424% late on Friday.
Markets fear that conflict between Tel Aviv and Tehran could spill over into the oil-rich Middle East, though no disruptions have been reported yet. Oil markets’ reactions have been the most volatile, while stocks and currencies have been more guarded.
The air war between Iran and Israel, the longtime enemies’ biggest battle ever, escalated on Monday, with Israel targeting Iran’s state broadcaster and uranium enrichment facilities.
The BTr wants to raise P230 billion from the domestic market this month, or P100 billion through Treasury bills and P130 billion via T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.54 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters
