T-bond rates ease; gov’t raises P30B

The government was able to raise its target amount of long-dated local debt paper during Tuesday’s auction of Treasury bonds (T-bonds) as rates fell.

Auction results on Tuesday showed the Bureau of the Treasury (BTr) borrowed the full issuance of P30 billion via re-issued seven-year T-bonds as total bids reached P73 billion, 2.4 times larger than its original size.

According to the BTr, the seven-year debt paper, which has a remaining life of four years and 10 months, fetched an average rate of 6.406 percent, lower compared to the 6.418 percent quoted for the comparable five-year debt note in the secondary market as of July 1, based on Peso Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The five-year T-bond average auction yield slightly lower amid recent signals on possible local policy rate cut of 25 basis points (bps) as early as August and possible 50 bps for 2024 as the markets recently priced in about two Fed rate cuts for the year after mostly softer US economic data,” Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Early cut

To recall, the Monetary Board has kept its benchmark rate steady at a 17-year high of 6.5 percent, following cumulative hikes of 450 bps to bring down inflation.

BSP Governor Eli Remolona Jr. signaled that the central bank can begin cutting rates as early as August by 25 to 50 basis points, making it the first rate cut in over three years.

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The Monetary Board is scheduled to meet on Aug. 15 to review its policy decisions.

The Marcos administration wants to raise P260 billion from T-bills and P370 billion via Treasury bonds in the third quarter. The Treasury will auction off more T-bonds with shorter tenors in the second quarter. In July, the BTr is set to borrow a total of P115 billion via T-bonds.