Philippine Treasury fully awards bond sale as easing Mideast tensions lift demand

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Philippine Treasury bond sale demand

Highlights

Treasury fully awards P30 billion in reissued 20-year bonds at a 7.639% average yield, with tenders reaching P77.759 billion and issue volume at P102.4 billion.
Yields drop as easing Middle East tensions and falling oil prices boost demand, with Brent crude down 1.7% to $90.99 and WTI off 1.8% to $85.20.
Philippine Q3 GDP growth slows to 2.1% versus 4% last year, while October inflation rises to 7.8%, driving continued elevated domestic borrowing needs.

Auction terms and market drivers

As reported by BusinessWorld Online, the Bureau of the Treasury fully awards its reissued 20-year Treasury bonds on Tuesday, bringing in P30 billion after the offer attracts P77.759 billion in tenders. The sale lifts the outstanding volume of the issue to P102.4 billion, according to the Treasury's statement after the auction.

The reissued papers, which carry a remaining life of three years and six months, are awarded at an average rate of 7.639%, with accepted yields ranging from 7.525% to 7.688%. The average yield is 111.1 basis points below the notes' 8.75% coupon and 2.1 basis points below the 7.66% rate quoted for comparable four-year debt in the secondary market before Tuesday's auction, based on PHL Bloomberg Valuation Service Reference Rates data provided by the Treasury.

A trader says the government fully awards the offer because the average yield is well within market expectations, while demand remains strong as the auction is more than twice oversubscribed. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort says the bond's average yield is broadly aligned with comparable secondary market rates, which mostly correct lower as inflation concerns ease on signs of receding Middle East tensions and falling global oil prices.

Oil prices, growth and borrowing plan

Reuters reports that oil prices fall on Tuesday, extending losses from the previous session after U.S. President Donald J. Trump downplays the need for additional military action against Iran at this point, easing concerns over prolonged supply disruptions from the Middle East. Brent crude declines 1.7% to $90.99 a barrel at 0759 GMT, while U.S. West Texas Intermediate falls 1.8% to $85.20, after both benchmarks drop about 2% in the previous session.

Ricafort adds that weak Philippine economic growth last quarter could also help ease domestic inflation pressures. Economic growth slows to 2.1% in the third quarter from 4% a year earlier and a revised 2.4% in the second quarter, bringing the nine-month average to 2.5%, below the government's 3.5% to 4.5% full-year target.

At the same time, October inflation rises to 7.8%, a near four-year high and the eighth straight month above the central bank's 3% target, pushing the year-to-date average to 5.6%. The Bureau of the Treasury targets P283 billion in domestic borrowing this month, with P168 billion set to come from Treasury bills and P115 billion from Treasury bonds, as the government funds a budget deficit capped at P1.659 trillion, or 5.4% of gross domestic product, this year.

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