THE GOVERNMENT partially awarded the reissued Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher yields on expectations of rate hikes from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).
The Bureau of the Treasury (BTr) raised just P17.559 billion via the reissued 10-year T-bonds it auctioned off on Tuesday, less than the programmed P35 billion, even as bids reached P56.406 billion.
The reissued papers, which have a remaining life of nine years and eight months, were awarded at an average rate of 6.313%, higher by 22.1 basis points (bps) than the 6.092% quoted when the series was last offered on March 29.
The average rate was also higher than the 6.0501% quoted for the 10-year tenor at the secondary market prior to the auction, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.
Had the Treasury made a full award of its offer, the reissued papers would have fetched an average rate of 6.387%.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the partial award was due to “higher bid yields, reflecting less need for the government to borrow locally after the recent foreign bond sales.”
The government recently raised $559 million from an offer of Samurai or yen-denominated bonds and $2.25 billion via global sustainability bonds.
“The higher US and global bond yields may have prompted the higher bid yields amid more aggressive Fed rate signals,” Mr. Ricafort said, adding the US Fed is expected to hike rates by half a percentage point on May 4, by two percentage points by September, and by as much as two and a half percentage points by the end of the year.
Meanwhile, a trader via Viber said that the auction result came as expected as yields sought by investors were higher the last time the bonds were auctioned off.
The trader added that the market reacted to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s comments on the possibility of a rate hike in June.
Mr. Diokno said in an interview with Bloomberg Television that the central bank may consider raising benchmark interest rates at its June 23 meeting.
Policy makers may wait for another cycle after the May 19 meeting if the economy grew around 6%-7% in the first quarter, he said.
The BSP chief previously said the central bank may begin rate hikes in the second half of this year, and that an increase to 2.5%-2.75% as part of a normalization process is “reasonable.”
“We can afford to wait as to what will be the move of the Fed in the next two meetings,” Mr. Diokno said during Monday’s interview. “Right now, there is no evidence of second-round effects on the demand side.”
The government wanted to raise P200 billion from the domestic market this month. Tuesday’s T-bond auction was the last one for April and the BTr borrowed just P100.38 billion via the longer-tenored papers versus the P140-billion program.
With Treasury bill awards totaling P64 billion this month, above the P60-billion plan, the BTr was able to raise P160.38 billion versus its P200-billion domestic borrowing program for April.
The BTr is expected to release its May borrowing plan this week.
The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — Tobias Jared Tomas with Bloomberg