THE GOVERNMENT fully awarded the dual-tenor Treasury bond (T-bond) auction it held on Tuesday, pricing the securities broadly in line with prevailing secondary market yields amid strong demand for risk assets and easing tensions between the United States and Iran, which pushed global oil prices lower.

The Bureau of the Treasury (BTr) raised P40 billion as planned through the dual-tranche auction, with total bids for the two tenors reaching P125.206 billion, more than three times the amount on offer.

For the reissued seven-year bonds, the Treasury sold the programmed P30 billion after bids for the tenor reached P80.238 billion. The papers, which have a remaining life of three years and two months, were awarded at an average rate of 7.217%, with bids ranging from 7% to 7.24%.

The average rate was 63.7 basis points (bps) higher than the 6.58% fetched at the series’ last award on June 30 and 21.7 bps above the issue’s 7% coupon. Even so, it was 2 bps below the 7.237% fetched for the same bond series and 22.8 bps higher than the 6.989% quoted for the three-year bond, the benchmark tenor closest to the issue’s remaining life, in the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

The BTr also sold the same bonds over the counter to government-owned and controlled corporations that are tax-exempt institutions.

For the reissued 20-year T-bonds, the government also sold the programmed P10 billion after bids totaled P44.968 billion, or almost four times the amount on the auction block. The notes, which have a remaining life of 17 years and 10 months, were awarded at an average rate of 7.684%, with accepted yields ranging from 7.6% to 7.798%.

To meet strong demand, the BTr opened its tap facility and raised an additional P10 billion from the same papers.

The average rate of the issue eased by 2.1 bps from the 7.705% fetched at the series’ last award on May 5, but remained 80.9 bps above its 6.875% coupon. It was also 24.7 bps higher than the 7.437% fetched for the same bond series and 25.4 bps above the 7.43% quoted for the 20-year bond in the secondary market before Tuesday’s auction, according to PHP BVAL Reference Rates data.

A trader said the BTr made a full award of its T-bond offer because there was “higher demand this week due to yields moving lower following the fall in oil prices because of the pause in US-Iran hostilities.” The trader added that the average yield fetched for the seven-year paper was at the lower end of market expectations, while the rate quoted for the 20-year notes was in line with estimates.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said in a Viber message that the full award reflected strong demand, likely supported by increased liquidity in the financial system and reinvestment requirements following recent bond maturities, including five-year bonds worth P282.2 billion. The sizeable maturity schedule can add cash back into the system and often lifts demand at subsequent auctions as investors look to redeploy funds into new government securities.

He added that rates had risen as the recent re-escalation in the Middle East conflict pushed up global yields, but the pause in hostilities over the weekend, which caused global oil prices to correct, revived risk appetite as inflation concerns eased.

Tuesday’s auction was the final government securities offering for the month.

In July, the BTr raised P455.071 billion from the domestic market, consisting of P330 billion from Treasury bills (T-bills) and P125.071 billion from T-bonds. This exceeded its P410-billion program, despite the full rejection of bids at one T-bond offering and the twice-monthly sale of cash management bills.

For August, the government plans to borrow P330 billion from the domestic market, composed of P200 billion in T-bills and P130 billion in T-bonds.

The government borrows from local and foreign sources to help finance its budget deficit, which is capped at P1.659 trillion, or 5.4% of gross domestic product, this year. — Aaron Michael C. Sy