THE GOVERNMENT partially awarded the reissued Treasury bonds (T-bonds) it offered on Wednesday as markets again reacted to a hawkish US Federal Reserve and an expected tightening by the Bangko Sentral ng Pilipinas (BSP) at the next Monetary Board meeting.
The Bureau of the Treasury (BTr) raised just P25.10 billion via the reissued 10-year T-bonds it auctioned off, less than the programmed P35 billion, even as the offering attracted P55.29 billion in bids.
The debt papers, which have a remaining life of four years and 11 months, were awarded at an average rate of 5.772%, up by 258.7 basis points (bps) from the 3.185% quoted when the series was last auctioned off on June 22, 2021.
The average yield fetched for the debt papers was also higher than the 5.5844% quoted for the five-year tenor — the closest benchmark to the remaining life of the reissued debt 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 bonds would have fetched an average rate of 5.832%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the higher rates were due to expectations of “surging inflation,” which breached the government’s target band.
Headline inflation for April was at a three-year high of 4.9%, quicker than the 4% seen in March. It was the quickest pace since the 5.2% print in December 2018, and higher than the 4.6% median estimate in a BusinessWorld poll.
The headline figure also breached the central bank’s 2-4% target for the year and was near the upper bound of its 4.2-5% forecast for April.
The last time inflation went above the target was in September 2021 when it rose by 4.2%.
“It (rates) also tracks US Treasury upward movement as [the] Fed maintains [a] hawkish stance to battle with high inflation,” Ms. De Leon added.
The first trader in a Viber message likewise said that “dealers and investors continue to seek for a higher risk premium due to anticipated interest rate liftoff by both the US Fed and the BSP in the months to come,” mainly to rein in inflation.
Fed officials are now committed to a series of further half percentage rate hikes in its June and July meetings, in order to combat runaway inflation, which US President Joseph R. Biden described as his “top priority,” Reuters reported.
Last week, the Fed also hiked rates by half a percentage point. Further rate hikes throughout the year will still be determined.
Locally, BSP Governor Benjamin E. Diokno said last month policy makers would consider a rate hike in their June 23 review, more hawkish compared with his earlier statements that the central bank would only start normalizing its pandemic-driven easy policy by the second half of the year. Benchmark rates have been at record lows since 2020.
The second trader also said that market demand was muted due to a hawkish Fed and rising inflation, which may cause the central bank to hike rates sooner rather than later.
This could cause the central bank to tighten monetary policy sooner than expected.
The second trader also noted that the tenor up for auction was not “liquid,” which may have contributed to its weaker demand.
The BTr wants to raise P200 billion from the domestic market in May, or P60 billion via Treasury bills and P140 billion through T-bonds.
The government borrows from local and external sources to plug a budget deficit capped at 7.7% of gross domestic product this year. — Tobias Jared Tomas with Reuters