THE GOVERNMENT partially awarded the reissued seven-year Treasury bonds (T-bonds) it offered on Tuesday as investors continued to ask for higher rates after inflation surged above 5% in May.
The Bureau of the Treasury (BTr) raised just P25.189 billion from its offer of the seven-year securities on Tuesday, below the programmed P35 billion, even as total tenders reached P48.80 billion.
The reissued bonds, which have a remaining life of three years and eight months, were awarded at an average rate of 5.514%. This is 78.2 basis points (bps) higher than the 4.732% quoted for the series when it was last offered on Jan. 21, 2020.
The average rate fetched for the debt papers was also 10.15 bps higher than the 5.4125% quoted for the four-year tenor — the closest benchmark to the remaining life of the reissued debt papers — in 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 bonds would have fetched an average yield of 5.579%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the partial award was due to higher rates after the release of May inflation data.
Ms. De Leon said markets remain watchful of policy hints from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve, with hikes of 25 bps and 50 bps, respectively, expected from them.
“It was a partial [award] as market players continue to seek higher rates given that there are too many bearish themes for bonds, [with] stubbornly high inflation on top of the list,” the first trader said in a Viber message.
“Yields will likely remain elevated over the medium term given that we are in the process of monetary tightening by most central banks globally, including our own BSP.”
The second trader said via Viber that the awarded yield was within market expectations, reflecting investors’ sentiment on rates.
Inflation quickened to its fastest pace in over three years in May due to higher food and transport costs, preliminary data from the Philippine Statistics Authority released on Tuesday showed.
Headline inflation in May surged by 5.4% year on year from 4.9% in April and 4.1% a year ago. This matched the 5.4% median estimate in a BusinessWorld poll conducted late last week, which was the midpoint of the 5-5.8% outlook range given by the BSP for that month.
May’s headline print was also the fastest since the 6.1% seen in November 2018.
Year to date, inflation has averaged 4.1%. This is lower than the central bank’s 4.6% forecast but above its 2-4% target for the year.
BSP Governor Benjamin E. Diokno last month said the central bank is likely to raise key interest rates by another 25 bps at its next policy review on June 23, following a hike of the same magnitude at its last May 19 meeting to curb growing inflationary pressures.
On Tuesday, Monetary Board member and incoming BSP chief Felipe M. Medalla said in a Bloomberg interview that they are “almost” sure to hike at their June 23 meeting and there is also a “90% chance” of another increase at their subsequent review on Aug. 18.
Mr. Medalla said the real question is if an August hike would be the last one for the year and noted decisions beyond this would be data dependent.
Increases worth 25 bps in the Monetary Board’s June and August meetings would bring the benchmark rate to 2.75% from 2.25% currently.
Meanwhile, as for the Fed, St. Louis Federal Reserve Bank President James Bullard last week said that while their rate hikes from the previous months seemed to help tame inflation, the Russia-Ukraine conflict and the China lockdown’s effects can still overturn the progress.
Cleveland Federal Reserve Bank President Loretta J. Mester also said last week that until she sees evidence of a drop in inflation, she would likely back another 50-bp hike in September, while Fed Governor Christopher J. Waller said he would support 50-bp increases at every meeting until inflation eases.
US inflation was at 8.3% in April, more than three times their target and among 40-year highs.
The BTr wants to raise P250 billion from the domestic market in June, or P75 billion through Treasury bills and P175 billion via T-bonds.
The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas with Bloomberg