THE GOVERNMENT partially awarded the reissued Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher rates due to expectations of tightening by the US Federal Reserve and faster US inflation.
The Bureau of the Treasury (BTr) raised just P22.027 billion via the reissued five-year T-bonds it auctioned off on Tuesday, less than the programmed P35 billion, even as tenders reached P45.907 billion.
The reissued five-year debt papers, which have a remaining life of four years, were awarded at an average rate of 4.968%, 29.9 basis points (bps) higher than the 4.669% quoted when the series was last offered on March 15.
The average yield fetched for the debt papers was also higher than the 4.6929% quoted for the four-year tenor — the closest benchmark to the remaining life of the reissued papers — 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 5.019%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that investors asked for higher rates following a rise in US Treasury yields due to hawkish comments from Fed officials last week, with the minutes of their March meeting also showing they intend to raise rates and reduce their asset holdings aggressively to fight rising prices.
“Markets also expect US inflation print in March to breach 8%,” Ms. De Leon said.
The Fed is expected to deliver two back-to-back half-point interest rate hikes in May and June to tackle runaway inflation, according to economists polled by Reuters who also say the probability of a recession next year is 40%.
With the unemployment rate near a record low, inflation the highest in four decades and a surge in global commodity prices set to persist, most analysts say the Fed needs to move quickly to keep price pressures under control, Reuters reported.
Fed officials in March “generally agreed” to cut up to $95 billion a month from the central bank’s asset holdings as another tool in the fight against surging inflation, even as the war in Ukraine tempered the first US interest rate increase.
Minutes of the Fed’s March 15-16 meeting showed deepening concern among policy makers that inflation had broadened through the economy, which convinced them to not only raise the target policy rate by a quarter of a percentage point from its near-zero level but also to “expeditiously” push it to a “neutral posture,” estimated to be around 2.4%.
Yields on US Treasury securities ticked higher after the release of the minutes last week, with the 10-year note yield climbing to 2.6%.
Economists polled by Reuters forecast the US consumer price index (CPI) to be released on Tuesday would post an 8.4% year-over-year increase for the month.
A trader in a Viber message said the auction result was “well within expectations,” as they expected the BTr to cap bids at 5%.
“However, we can also see that the market is really defensive given higher CPI forecasts and a much aggressive Fed tightening cycle,” the trader said.
“The partial award implies that dealers and investors are cautious and still hesitant to build up major positions in anticipation of higher yields in the months to come,” a second trader added.
The BTr plans to raise P200 billion from the local market in April, or P60 billion through Treasury bills and P140 billion via T-bonds.
The government borrows from domestic and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas with Reuters