BTr fully awards reissued bonds at higher rate on inflation fears

THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday, even as its average rate was higher than expected on inflation concerns.

The Bureau of the Treasury (BTr) on Tuesday borrowed P35 billion as planned via the reissued five-year Treasury bonds (T-bonds) with a remaining life of four years and five months.

Total tenders during Tuesday’s auction reached P56.08 billion, higher than the initial offer but lower than the P76.167 billion in bids recorded the last time the BTr offered the bond series on Sept. 1.

The reissued notes fetched an average rate of 3.576%, climbing by 83 basis points from 2.746% recorded in the previous auction of these papers.

This was also higher than the 3.52% quoted for the five-year tenor at the secondary market prior to the offering, based on PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the bonds on offer on Tuesday saw its average rate increase due to high inflation.

Headline inflation stood at 4.8% in September, slowing from the 4.9% logged in August but faster than the 2.3% print recorded in the same month last year, the Philippine Statistics Authority reported last week.

The September print hit the lower end of the Bangko Sentral ng Pilipinas’ (BSP) 4.8%-5.6% estimate for that month.

Headline inflation for the first nine months averaged at 4.5%, above the central bank’s 2-4% target and 4.4% forecast this year.

Meanwhile, a bond trader said the average rate quoted for the reissued five-year notes on Tuesday was higher than market expectations.

“Since these are towards the belly of the curve, it does seem to confirm that market consensus is that yields are on the rise,” the trader said in a Viber message.

“Locally, the BSP will have to raise rates sooner rather than later if inflation remains elevated. At the same time, yields in the US may rise as well if the Fed tapers asset purchases based on good economic data.”

BSP Governor Benjamin E. Diokno has said the regulator will keep rates low for as long as necessary as the economy’s recovery remains fragile.

The central bank last month kept the key policy rate steady at a record low of 2%, saying the elevated inflation seen in recent months was mainly due to low supply.

Officials have said inflation is expected to return within the 2-4% target by 2022 and 2023.

Meanwhile, the US Federal Reserve last month said it could start reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected.

The BTr is looking to raise P200 billion from the local market this month: P60 billion from weekly offers of Treasury bills and P140 billion from weekly auctions of T-bonds.

The government wants to borrow P3 trillion from local and external sources this year to help fund a budget deficit seen to hit 9.3% of gross domestic product. — Jenina P. Ibañez