THE GOVERNMENT fully awarded the reissued Treasury bonds (T-bonds) it offered on Wednesday as investors were defensive ahead of the release of April inflation data and the US Federal Reserve’s latest policy decision.
The Bureau of the Treasury (BTr) raised P35 billion as programmed through the reissued three-year bonds auctioned off on Wednesday, with tenders reaching P41.49 billion.
The debt papers, which have a remaining life of two years and 11 months, were awarded at an average rate of 4.598%. This is 34.8 basis points (bps) higher than the coupon rate of 4.25% fetched when the papers were last offered on April 8, the first time the series was auctioned off. Accepted yields ranged from 4.3% to 4.85%.
The average rate for the tenor was also 45.92 bps higher than the 4.1388% quoted for the three-year debt papers 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 it is “not appropriate” to simply compare the yield fetched at Wednesday’s auction to the coupon seen for the bond series last month as “significant developments” have occurred since then.
“Markets are bracing for a hawkish pivot from the Fed with 50 bps rate hike in tandem with balance sheet reduction to battle inflation,” Ms. De Leon said.
“Onshore, inflation forecast for April is 4.6% and BSP (Bangko Sentral ng Pilipinas) has issued a warning that it may start hiking this June. Interestingly, in 2018, when inflation hovered at 4.6%, the three-year rate was at 4.79%,” she noted.
The first trader in a Viber message said that the average rate was “a bit steep compared to its last traded level prior to the auction.”
“Market submitted defensive bids ahead of the FOMC (Federal Open Market Committee) meeting results and Philippine April CPI (consumer price index) figure, both due out Thursday,” the second trader added.
The Fed’s policy-setting FOMC is widely expected to fire off another rate hike at its May 3-4 review following the 25-bp increase it made in March.
Fed Chairman Jerome H. Powell has said they will consider increasing borrowing costs by a bigger 50 bps to help tame inflation that has reached multi-decade highs.
Fed policy makers are looking set to deliver a series of aggressive interest rate hikes at least until the summer, Reuters reported.
There won’t be economic or dot plot projections at this meeting, but the market will pay close attention to Mr. Powell’s press conference for clues on interest rates and balance sheet reduction.
Meanwhile, inflation likely accelerated beyond the central bank’s target in April, analysts said, as food and oil prices continue to climb amid the ongoing Russia-Ukraine war and agricultural damage caused by Tropical Storm Agaton.
A BusinessWorld poll of 17 analysts yielded a median estimate of 4.6% for the April CPI, matching the midpoint of the BSP’s 4.2% to 5% forecast.
If realized, this would be faster than the 4% in March and the 4.5% in April 2021 and would be the first time that inflation would exceed the BSP’s 2-4% target band since the 4.2% print in November 2021. It will also match the 4.6% print seen in October.
BSP Governor Benjamin E. Diokno said in an interview with Bloomberg TV last week that the central bank may consider hiking key interest rates at its June 23 meeting.
This marks a departure from Mr. Diokno’s previous statements that the central bank would only consider normalizing its stance in the second half or when the Philippine economy’s recovery firms up.
Meanwhile, a second trader said the BTr’s full award despite the low demand and higher yields shows they need cash.
“BTr’s award of bids as high as 4.85% will create uncertainty once more in local markets,” the second trader said in an e-mail. “The high of 4.85% is 40 bps higher than the secondary market bid in the morning.”
“They have been inconsistent, to say the least, with last week’s 10-year auction partially awarded and capped at 30 bps above secondary levels. With this development, I think the market will be cautious in succeeding auctions,” the second trader added.
The BTr wants to raise P200 billion from the domestic market in May, or P60 billion via Treasury bills and P140 billion through 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