THE GOVERNMENT fully awarded the reissued 10-year Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate despite expectations of another hike by the central bank.
The Bureau of the Treasury (BTr) on Tuesday raised P35 billion as planned from its offer of reissued 10-year bonds that have a remaining life of nine years and 10 months. Total bids reached P128.83 billion or more than thrice the amount on the auction block.
Rates awarded on Tuesday ranged from 5.785% to 5.87%, bringing the average yield on the bond to 5.813%, lower by 143.70 basis points (bps) than the 7.25% coupon fetched for the series when it was first offered on June 21.
The average rate was also 15.08 bps below the 5.9638% quoted for the 10-year bonds at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Reference Rates data provided by the BTr.
To accommodate the strong demand seen for Tuesday’s offering, the Treasury opened its tap facility to raise P15 billion more via the bonds for a yield-to-maturity of 5.813%.
National Treasurer Rosalia V. de Leon told reporters in a Viber message that it was another “impressive” auction as the market’s preference for long tenors caused the offer to fetch rates lower than second-ary market levels, even with the Bangko Sentral ng Pilipinas (BSP) expected to raise borrowing costs anew at their Thursday meeting.
“Expectations continue to be defied auction after auction. This one was a strong one and that is ahead of a projected 50-bp BSP hike this Thursday,” the first trader said.
“Sentiment has indeed improved for local bonds given the decline in global oil prices, which in turn alleviates inflation fears,” the trader added.
The second trader said the bond’s average yield dropped amid strong demand for the offer despite the looming rate increase from the central bank, with investors likely looking to put their cash in higher-yielding instru-ments amid lingering global uncertainties.
“Investors in this space might be looking beyond this year already as the global growth outlook weakens,” the trader added.
The BSP is widely expected to raise its benchmark rates anew on Thursday, with most analysts forecasting a 50-bp increase as inflation remains elevated.
A BusinessWorld poll held last week showed 16 out of 18 analysts expect the Monetary Board to hike rates at its Aug. 18 meeting.
For 13 analysts, the central bank may deliver a hike of 50 bps, while three analysts see a 25-bp increase. Only two analysts expect the BSP to keep borrowing costs unchanged.
BSP Governor Felipe M. Medalla earlier said that the central bank’s policy-setting Monetary Board may hike rates by 50 bps at their meeting this week as inflation quickened to 6.4% in July, a near four-year high. This was also faster than the 6.1% in June and 3.7% a year ago.
For the first seven months, headline inflation averaged 4.7%, higher than the 4% seen in the same period in 2021 and the central bank’s 2-4% target for the year but lower than its 5% forecast.
The Monetary Board has raised rates by a total of 125 bps since May, including a 75-bp off-cycle hike last month.
Faster inflation continues to cloud the global economic outlook, as Russia’s war in Ukraine, along with supply chain issues, has caused commodity and energy prices to rise and a tightening in financial conditions.
Amid rising prices, most central banks have moved to reverse the ultra-loose monetary policy they adopted during the coronavirus pandemic to support growth, raising fears of a global slowdown.
In particular, the US Federal Reserve has been extra aggressive in raising its benchmark rate from near zero, stoking recession concerns in the world’s largest economy and causing policy spillovers to emerging markets like the Philippines.
The BTr wants to raise P215 billion from the domestic market this month, or P75 billion through Treasury bills and P140 billion via T-bonds.
The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — D.G.C. Robles
