Strong demand pushes down T-bond rates

MANILA, Philippines  -The government was able to fully raise its target amount of P30 billion in long-term debt during Tuesday’s sale of Treasury bonds (T-bonds) after strong demand from creditors helped bring down borrowing costs.

Auction results showed the five-year T-bond attracted total bids amounting to P74.3 billion, more than twice the original size of the offer, the Bureau of the Treasury (BTr) said.

The healthy appetite for the debt notes helped the government lock in cheaper rates. The T-bond fetched an average rate of 6.073 percent, lower than the 6.512 percent seen in the comparable auction last Oct. 10, 2023.

READ: Gov’t unveils P585-B local borrowing plan for Q1 2024

But the rate was more expensive than the 6.03 percent quoted for the same tenor in the secondary market as of Jan. 9, data provided by the BTr showed.

The T-bond yield fell “amid easing headline inflation trend since then and the latest dovish signals on possible -1 percentage point local policy rate cut in 2024,” Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said in a commentary.

“The net decline in the five-year T-bond auction yield in recent months is also due to unusually strong demand,” Ricafort added.

Documents from the budget department showed the Marcos administration plans to borrow P1.85 trillion onshore in 2024.

Of that amount, P51 billion will be raised via Treasury bills while P1.8 trillion will come from weekly auctions of T-bonds.

Those borrowings are needed to help plug a projected budget hole of P1.39 trillion this year, which is equivalent to 5.1 percent of gross domestic product.

Based on latest government forecasts, it is only in 2027 that the budget deficit, as a share of the economy, is expected to return to prepandemic level at 3.2 percent. —Ian Nicolas P. Cigaral INQ