Gov’t rejects all bids for 3-year Treasury bonds as rates climb

THE GOVERNMENT on Tuesday rejected all bids for its offer of fresh three-year Treasury bonds (T-bonds) as investors asked for high rates amid the crisis in Ukraine.

The Bureau of the Treasury (BTr) did not accept any tenders for the securities even as bids reached P45.26 billion, higher than the P35 billion on offer.

The three-year notes would have fetched a coupon rate of 4.375% if fully awarded, higher than the 3.7984% quoted for the tenor at the secondary market before the auction, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon in a Viber message to reporters said the market demanded a large premium amid expectations of higher inflation as oil prices climbed after Russia invaded Ukraine.

A potential 50-basis-point (bp) rate hike by the US Federal Reserve is still on the table, she added.

Inflation likely jumped to 3.3% in February on rising oil and commodity prices, a BusinessWorld poll of 15 analysts showed.

If realized, this median estimate would be faster than the 3% in January. Still, this is within the 2-4% target set by the Bangko Sentral ng Pilipinas.

Brent crude futures on Tuesday rose by 0.91% to $98.86 per barrel, Reuters reported.

The benchmark touched a seven-year high of $105.79 after Russia’s invasion of Ukraine last week, though markets calmed as the United States and allies discuss a coordinated release of crude stocks.

Meanwhile, the US Federal Reserve is poised to raise interest rates at its meeting this month, with policy makers publicly sparring about whether a large 50-bp hike is necessary.

Atlanta Fed President Raphael Bostic said on Monday he was in favor of a 25-bp rise, but could consider a 50-bp move if economic data between now and then show high inflation persisting.

Cleveland Federal Reserve President Loretta Mester, meanwhile, said the conflict in Ukraine would be considered as the Fed decides on the pace of its tightening.

Meanwhile, a bond trader said via Viber that the rejection was expected due to the high bids from investors.

“They have leeway to reject because of the RTB (retail Treasury bond) volume but clearly, [the]market doesn’t have the appetite to add bond holdings given the risks,” the trader said.

The government raised P457.8 billion from its offer of five-year RTBs that ended on Monday.

The BTr also rejected all bids for its offer of Treasury bills (T-bills) on Monday even as the offer was oversubscribed as investors asked for higher rates.

The Treasury plans to raise P250 billion from the domestic market this month, or P75 billion via T-bills and P175 billion from T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — Jenina P. Ibañez with Reuters