Gov’t makes full award of bonds at higher rate on inflation fears

THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday at a higher average rate due to inflation fears and hawkish comments from US Federal Reserve policymakers.

The Bureau of the Treasury (BTr) raised P35 billion as programmed from the reissued seven-year bonds it auctioned off on Tuesday, with bids reaching P47.336 billion.

The debt papers, which have a remaining life of six years and three months, were awarded at an average rate of 5.779%, up by 17.8 basis points (bps) from the 5.601% fetched when they were last sold on March 22. The bonds have a coupon rate of 3.75%.

The average rate was also higher than the 5.6836% quoted for the seven-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 at a higher rate due to hawkish comments from Fed officials suggesting a hike of 50 bps to tame rising prices.

Central banks around the world have been tightening their monetary policies to temper inflation despite lingering risks to economic growth.

A Reuters poll last week showed analysts expect the Fed to raise rates by 50 bps each for its May and June review to respond to runaway inflation. These analysts also expect a 40% probability of recession by 2023.

St. Louis Federal Reserve Bank President James Bullard on Monday said he wants to increase benchmark interest rates to 3.5% by the end of the year to slow inflation that reached 40-year highs in February and March. This would mean 50-bp interest hikes at all six of the Fed’s remaining meetings this year.

US inflation surged to 8.5% year on year in March amid record high fuel costs.

Oil prices rose on Tuesday due to the closure of oil fields in Libya. Brent crude rose by $1.46 or 1.3% to settle at $113.16 a barrel, while US crude rose by $1.26 or 1.2% to $108.21 a barrel.

Meanwhile, a trader in a Viber message said the T-bond auction result came as a surprise as the market was expecting the rate of the tenor to only be between 5.5% and 5.75%.

“Bids were higher due to CPI (consumer price index) pressures and hawkish tone of other central banks,” the trader said.

The trader added that Tuesday’s auction result may cause the market to be defensive ahead of next week’s 10-year T-bond offer.

The BTr wants to raise P200 billion from the domestic market in April, or P60 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 7.7% of gross domestic product this year. — T.J. Tomas with Reuters