P30-B Treasury bonds awarded amid likely lower BSP rate

The Bureau of the Treasury fully awarded P30 billion from its seven-year bonds auctioned off Tuesday as the average rate declined ahead of a possible rate cut by the Bangko Sentral ng Pilipinas (BSP).

Auction results showed the offer was nearly four times oversubscribed, with total bids amounting to P114.896 billion.

The bonds fetched an average rate of 6.286 percent, down from 6.624 percent recorded in the previous auction on 4 June.

The latest rate was also lower than the 6.38 percent of the seven-year bonds listed in the secondary market on Monday.

Rate reflects investors’ anticipation

Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the new rate reflects investors’ anticipation of a lower rate from the BSP next month and new foreign borrowings.

“The rate cut could come ahead of a possible Federal Reserve’s rate cut, as well as signals on additional national government foreign bond sales for the rest of this year that could somewhat hedge and help reduce the need for more local borrowings,” he said.

BSP Governor Eli Remolona Jr. said the central bank has turned less hawkish after lower inflation last month and projections of cheaper rice prices due to the implementation of a reduced tariff on the commodity.

Bank of the Philippine Islands chief economist Jun Neri on Monday said inflation might fall below three percent by September from 3.7 percent in June, encouraging the BSP to adjust its rate downward to support consumption of goods and services and overall economic growth.

Samurai and US dollar bonds

Meanwhile, Department of Finance Secretary Ralph Recto said the government is looking to offer samurai and US dollar bonds within this year, taking advantage of a possible lower rate from the Federal Reserve.

“The benchmark 10-year US Treasury yield hit new one-week lows at 4.28 percent after mostly softer US economic data that could justify cuts for the coming months, with a 75 percent chance in September,” Ricafort shared.

In May, the government raised $2 billion from dual-tranche global bonds. It set a total of $5 billion foreign borrowings for this year.