Treasury fully awards reissued 10-year bonds at higher yield
THE GOVERNMENT fully awarded the reissued Treasury bonds (T-bonds) it offered on Tuesday at a higher average rate as investors remain defensive amid expectations of aggressive rate hikes from the US Federal Reserve.
The Bureau of the Treasury (BTr) raised P35 billion as planned via the reissued 10-year bonds it auctioned off on Tuesday, with bids reaching P57.915 billion.
The debt papers, which have a remaining life of nine years and nine months, were awarded at an average rate of 6.092%, up by 99.9 basis points (bps) from the 5.093% fetched when they were last offered on Feb. 8. The bonds carry a coupon rate of 4.875%.
The average rate was also higher than the 5.6454% quoted for the 10-year tenor 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.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the government made a full award of its T-bond offer on Tuesday at a higher rate as the market remained defensive as expectations of big Fed rate hikes continue to drive US Treasury yields higher.
A trader said in a Viber message that the auction result was within expectations.
“For a long-end bond issuance, total tenders gathered were fairly decent given the current sour sentiment for bonds due to forecasted rate hikes by both the US Federal Reserve and the BSP (Bangko Sentral ng Pilipinas),” the first trader said.
A second trader said the tenor was awarded “at the higher end of expected range” due to inflation risks and Fed tightening bets.
The US central bank must move “expeditiously” to bring too-high inflation to heel, US Federal Reserve Chair Jerome H. Powell said last week, adding that it could use bigger-than-usual interest rate hikes if needed to do so, Reuters reported.
In particular, he added, “if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 bps at a meeting or meetings, we will do so.”
The US consumer price index was at 7.9% year on year in February, the fastest in four decades. Inflation risks have been growing due to the ongoing war between Russia and Ukraine, which has caused prices of oil and other commodities to spike.
Meanwhile, the BSP kept benchmark interest rates unchanged for the 11th straight meeting on Thursday even amid growing inflation risks.
The central bank now expects inflation to average 4.3% this year, above the 2-4% target and faster than the previous 3.7% estimate. It also raised its inflation forecast for next year to 3.6% from 3.3%.
Still, BSP Governor Benjamin E. Diokno said over the weekend that surging oil and commodity prices caused by Russia’s invasion of Ukraine are supply problems that are better managed by policies from the government.
The BTr wanted to raise P250 billion from the domestic market this month, or P75 billion though Treasury bills (T-bills) and P175 billion from T-bonds. However, it made several rejections and partial awards at auctions due to rising yields.
Tuesday’s T-bond auction was the last one for March and the Treasury borrowed just P63.725 billion versus the P175-billion program. With T-bill awards only reaching P28.04 billion against the P75-billion plan, the BTr was only able to raise P91.765 billion out of its P250-billion borrowing program for this month.
The BTr is expected to release its April borrowing plan within the week.
The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas with Reuters
