Gov’t makes partial award of reissued three-year T-bonds

THE GOVERNMENT partially awarded the reissued three-year Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher yields on expectations of high inflation and rate hikes from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The Bureau of the Treasury (BTr) raised just P9.305 billion from its offer of three-year papers on Tuesday, less than the programmed P35 billion even as the auction saw total bids reach P56.926 billion.

The bonds, which have a remaining life of two years and 10 months, were awarded at an average rate of 4.994%. This was higher by 74 basis points (bps) versus the 4.25% coupon quoted for the bond series when they were first offered on April 5.

The average yield seen yesterday was also higher by 15.48 bps compared to the 4.8352% quoted for the three-year tenor at the secondary market at the end of trading on Monday, based on the PHP Bloomberg Valuation 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 BTr made a partial award even as the offer was met with high demand as investors asked for higher yields due to expectations that inflation breached 5% in May and that the BSP and Fed will hike rates again in their next policy meetings.

“We saw a partial award as the market continued to submit defensive and high bids. We have the May inflation [data] coming in the next few days, which may show another breach in inflation target,” the first trader said.

The trader said high inflation could put upward pressure on local yields and cause the BSP to further tighten its policy settings.

A second trader said investors remain defensive and wanted the yield on the reissued three-year bond to be above 5% as they expect the BSP to hike rates by a total of 100 bps this year.

The BSP is likely to raise key interest rates by another 25 bps at its next policy review this month, its chief said last week.

“We are probably inclined to have another 25-basis-point adjustment on our next Monetary Board meeting which is on June 23,” BSP Governor Benjamin E. Diokno said.

The BSP raised benchmark interest rates by 25 bps on May 19, marking its first hike since November 2018, as it tries to temper rising inflationary pressures.

The Monetary Board increased the key policy rate by 25 bps to 2.25%. Interest rates on the overnight deposit and lending facilities were also hiked by 25 bps to 1.75% and 2.75%, respectively.

At that meeting, the central bank upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, exceeding the 2-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.

Headline inflation climbed to 4.9% in April, the highest in more than three years. May inflation data will be released next week.

Meanwhile, all participants of the Fed’s May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation that they agreed had become a key threat to the economy’s performance and was at risk of racing higher without action by the central bank, Reuters reported.

This month’s 50-basis-point hike in the Fed’s benchmark overnight interest rate was the first of that size in more than 20 years and “most participants” judged that further hikes of that magnitude would “likely be appropriate” at the Fed’s policy meetings in June and July, according to the minutes released last week.

The BTr wants to raise P250 billion from the domestic market in June, or P75 billion through Treasury bills and P175 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.7% of gross domestic product this year. — Keisha B. Ta-asan