THE GOVERNMENT fully awarded P15 billion worth of reissued five-year Treasury bonds (T-bond) on Tuesday, accepting higher yields as the market priced in rate hikes by the Bangko Sentral ng Pilipinas (BSP).
The Bureau of the Treasury accepted P15 billion in bids as planned, with total tenders reaching P24.52 billion, more than filling the offer size.
The papers, which have a remaining life of four years and six months, fetched an average yield of 5.902%, up 31 basis points from 5.592% in the previous auction.
Prior to the awarding, rates for the five-year bonds at the secondary market were higher at 5.9625%.
At the close of trading yesterday, the bonds were quoted lower at 5.9431%.
Yesterday also marked the first awarding of T-bonds after the government rejected bids for four consecutive auctions. It was also the first fully-awarded long-term debt note since May 30.
National Treasurer Rosalia V. De Leon said bids by banks priced in the three rate hikes implemented by the Bangko Sentral ng Pilipinas (BSP).
“You saw the 31-basis point increase. First of all, the last time we accepted for this security was sometime May. So since May, there’s [an almost] 100-basis point increase in the policy rate. So it’s just catching up, they just repriced,” Ms. De Leon told reporters after the auction.
“It’s more or less aligned with the current rates where we are, given the policy actions of the central bank with the 100 basis points increase,” she added.
In a bid to anchor inflation expectations, the BSP raised its benchmark interest rates by 25 basis points each in May and June and 50 basis points hike last week.
Headline inflation stood at 5.7% in July, bringing the average to 4.5% for the first seven months of the year — exceeding the central bank’s 2-4% target.
Traders interviewed likewise said the increase in yields meant the market was catching up with rising inflation.
“At this point, the yields are catching up. Inflation is still high, although they are expecting that it is still manageable,” a trader said in a phone interview yesterday. “So they have to manage as much as possible — the BSP — to put equilibrium on yields and real interest rate. So far we are behind the curve as much as they deny it. We are behind. But at least they already hiked.”
Another trader meanwhile said yields may continue to rise, as it is still uncertain that inflation could already peak this quarter as estimated by the government and amid external developments, particularly between the US and Turkey.
“For now, we can’t tell if inflation had already peaked. So the yields also haven’t peaked. But once inflation subsides and the economy improves, the yields can settle,” the second trader said in a separate phone interview.
“Because we follow the US Treasuries and they have external problems like with the crisis in Turkey… We are also part of the emerging markets, so we are affected, as well as the yields. They’re risk-off,” the trader added.
Meanwhile, Ms. De Leon said yesterday that the Bureau of the Treasury has already secured necessary approvals for the planned retail Treasury bonds for the rehabilitation of Marawi city worth an indicative P50-60 billion, but the timing of the offering has yet to be determined.
“We’re also looking at how much would be in the budget. In 2019, there would be about P3.5 billion only in the budget for the rehabilitation. So for us, we would only be able to issue…how much would be included in the appropriations provided, netting some of the identified sources of financing coming from ODA (official development assistance),” said Ms. De Leon.
“But in the meantime, we…more or less have already done a lot of the legwork. We have secured the Agri-Agra eligibility of the bonds. We’re also looking at a possibility of doing online retail Treasury bonds. The systems are now being tweaked together with the other possible banks that would also be…doing the issuance and distribution of the bonds,” she added.
The Treasury is set to raise P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in Treasury bills and another P105 billion in T-bonds.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Elijah Joseph C. Tubayan

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