THE GOVERNMENT partially awarded the fresh Treasury bonds (T-bonds) it offered on Tuesday as players continued to ask for higher returns on expectations of more rate hikes from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.
The Bureau of the Treasury (BTr) raised P34.892 billion via the fresh 10-year T-bonds it auctioned off on Tuesday, just below the programmed P35 billion, even as the offer attracted P67.294 billion in bids.
The debt papers were awarded at a coupon rate of 7.25%, 30.59 basis points (bps) higher than the 6.9441% quoted for the 10-year tenor at the secondary market before the auction, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website. Rates bid by participants ranged from 6.95% to 7.37% for an average of 7.145%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the BTr nearly made a full award as the offer attracted strong demand even with the tenor being long.
“Market provided cushion against back-to-back rate increases to be delivered by both the Fed and BSP in the next policy meetings to slay the ugly head of inflation,” Ms. De Leon said.
The first trader said in a Viber message that demand for the 10-year bonds was strong due to a lack of supply of long tenors in the primary and secondary markets.
“Bids submitted by the market were very much in line with expectations… It offers a relatively attractive yield compared to other bonds in the local GS (government securities) curve. We haven’t seen these levels for quite a while now so there may be some form of value investing already,” the first trader said.
The second trader said the auction was successful as the Treasury almost made a full award with the rate range “well within expected levels.”
The BSP’s Monetary Board will meet to review policy settings on Thursday, June 23.
Outgoing BSP Governor Benjamin E. Diokno and his successor Monetary Board member Felipe M. Medalla last week said a 25-bp hike at the Thursday meeting is almost a “sure thing.” Both made their comments before the Fed’s decision to raise rates by 75 bps last week.
Mr. Medalla said the BSP could raise rates again in its Aug. 18 meeting and several more times this year, but tightening will be gradual as he ruled out hikes bigger than 25 bps. He said in a roundtable discussion with BusinessWorld editors last week that the BSP still has the “luxury of time and large reserves.”
On Monday, Mr. Diokno and Mr. Medalla affirmed their intent to raise rates gradually, both signaling a 25-bp hike this week despite market expectations of a 50-bp increase.
The BSP began its tightening cycle with a 25-bp hike on May 19 to help stem rising prices as headline inflation already reached 5.4% in May, higher than its 4.6% forecast and 2-4% target for the year. Year to date, inflation has averaged 4.1%.
Increases worth 25 bps at the Monetary Board’s June and August meetings would bring the benchmark rate to 2.75% from the current 2.25%.
Meanwhile, several US central bankers are set to give speeches this week, led by a likely hawkish testimony from Fed Chair Jerome H. Powell to the House on Wednesday and Thursday.
The Fed last week vowed its commitment to containing inflation was “unconditional,” while Fed Governor Christopher Waller on Saturday said he would support another hike of 75 bps in July.
US inflation rose by 8.6% year on year in May, the highest in 40 years.
The BTr wants to raise P250 billion from the domestic market in June, or P75 billion via Treasury bills and P175 billion via T-bonds.
The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — T.J. Tomas