Philippines: 30-billion-peso Treasury bond offer 3x oversubscribed
Total tenders reached 96.3 billion pesos, against 30-billion-peso offer
Manila: The Bureau of Treasury (BTr) of the Philippines has successfully raised its target amount of 30-billion-peso long-term local debt during Tuesday's Treasury bond (T-bond) auction, driven by market anticipation of interest rate cuts from the US Federal Reserve this week.
The BTr fully awarded its offer of 30 billion pesos (around $538.3 million) in reissued 10-year T-bonds, with total bids surging to 96.3 billion pesos ($1.73 billion), more than triple the available volume.
The debt paper, with a remaining maturity of nine years and four months, fetched an average interest rate of 5.967 per cent.
This was lower than the 6.06 per cent quoted for comparable 10-year debt notes in the secondary market as of September 16 and also below the 6.212 per cent rate from the previous T-bond issuance in July.
The lower yield was attributed to growing market expectations of a significant 50-basis point (bps) rate cut by the US Federal Reserve during its upcoming policy meeting on Wednesday, September 18, 2024.
Economists surveyed by Reuters largely expect the Fed to reduce its benchmark overnight interest rate by 25 bps at the conclusion of its two-day meeting.
The US central bank has held rates steady in the 5.25%-5.50% range for a year, following a cumulative 525 bps increase since 2022.
The Philippine government aims to raise 195 billion pesos ($3.5 billion) from domestic borrowing this month, with 80 billion pesos coming from Treasury bills and 115 billion pesos via T-bonds.
These funds are part of efforts to finance the country's budget deficit, which is capped at 1.48 trillion pesos ($26.5 billion), or 5.6% of total economic output for 2024.
Oversubscribed bond auction: what it means
When a Treasury bond offer is "oversubscribed," it means that the total amount of bids submitted by investors exceeds the amount of bonds the government is offering for sale.
In other words, the demand for the bonds is higher than the supply available in the auction.
This situation often reflects strong investor confidence in the safety or return of the bonds, or it could indicate favourable market conditions such as lower interest rates or expectations of future rate cuts.