Gov’t fully awards 10-year bonds at higher rate

THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday even as the tenor’s yield went up on inflation and rate hike fears due to the stronger-than-expected economic growth seen in the third quarter.

The Bureau of the Treasury (BTr) raised P35 billion as planned via the reissued 10-year T-bonds it offered on Tuesday. The papers have a remaining life of nine years and eight months.

Tuesday’s offer of government debt attracted P55.37 billion in tenders, lower than the P73.59 billion in bids seen when the bond series were last auctioned off on Sept. 28.

The average yield on the 10-year bonds jumped by 44.1 basis points to 5.13% on Tuesday from the 4.689% fetched during the previous offering.

This was also higher than the 4.96% quoted at the secondary market prior to the auction, based on the PHL 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 market remains concerned over inflation as it is still higher than the central bank’s target despite the recent deceleration.

She added that there is some speculation that the Bangko Sentral ng Pilipinas (BSP) may start raising rates following the economy’s strong performance in the third quarter.

Headline inflation settled at 4.6% in October, slower than the 4.9% median estimate of 21 analysts in a BusinessWorld poll last week.

The October figure was slower than the 4.8% in September, but faster than 2.5% a year earlier. Still, this was the third straight month inflation exceeded the 2-4% target of the central bank for the year. Inflation has topped the BSP target this year except in July.

This brought headline inflation for the first 10 months to 4.5%, faster than the 4.4% forecast by the central bank for the year.

Meanwhile, the country’s gross domestic product (GDP) grew 7.1% in the third quarter, the Philippine Statistics Authority reported on Tuesday, better than the 4.7% median estimate seen in a BusinessWorld poll but slower than the 12% growth in the second quarter.

GDP growth in the first three quarters averaged 4.9%, near the upper end of the government’s 4-5% target.

BSP Governor Benjamin E. Diokno has said the central bank will keep borrowing costs low to support the economy’s recovery.

Last month, he said raising benchmark rates “too early” could harm the country’s rebound and noted there would be no policy adjustments until the end of the year.

“Since [third-quarter GDP was] higher than market expectation, it’s negative for the bond market because fast growth is inflationary. That’s why there was an upward bias in the [10-year bond’s] yield,” a bond trader said in a phone interview.

A second trader said in a Viber message that the reissued 10-year notes fetched a higher yield on Tuesday as investors are asking for higher returns for bonds that are at the long end of the curve.

“This may be due to higher GDP growth and the loosening of pandemic restrictions,” the trader added.

The Treasury plans to raise P200 billion from the domestic market in November: P60 billion via weekly T-bill auctions and P140 billion from weekly offers of T-bonds.

The government wants to borrow P3 trillion from local and external sources this year to help fund a budget deficit seen to hit 9.3% of gross domestic product. — Jenina P. Ibañez