The government partially awarded the fresh Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher returns due to expectations of a hike at the Bangko Sentral ng Pilipinas’ (BSP) policy meeting on Thursday.
The Bureau of the Treasury (BTr) raised just P20.10 billion via the fresh seven-year T-bonds it auctioned off on Tuesday, less than the programmed P35 billion, despite total tenders reaching P46.94 billion.
The debt papers were awarded at a coupon rate of 6.5%, 31.1 basis points (bps) higher than the 6.189% quoted for the seven-year tenor at the secondary market before the auction, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website. The BTr capped bids at 6.6%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the partial award was due to expectation that the BSP’s Monetary Board (MB) would start tightening at its meeting on Thursday.
“At the same time, [The US] Fed is similarly expected to follow up with another rate lift in their next meeting,” Ms. De Leon added.
“Another partial award still reflects markets defensiveness ahead of the MB meeting. Most players are now pricing in a rate hike and are wary of the updated forward guidance,” the first trader said.
A second trader said with about two-thirds of the government’s 2022 borrowing program already funded, “there is no compelling reason for the BTr to chase yields.”
Some market players are pricing in a rate hike at the BSP’s meeting this week as faster-than-expected economic growth in the first quarter is seen to put upward pressure on inflation.
A BusinessWorld poll of 17 analysts conducted last week showed they are divided on the BSP’s next move, with nine betting rates will remain unchanged, while eight are expecting a 25-bp hike.
The key policy rate has been at a record low 2% since November 2020, when the BSP cut rates by 25 bps.
Economic growth in the first quarter accelerated by a higher-than-expected 8.3% annually on strong household spending as lockdowns were eased, the Philippine Statistics Authority reported last week.
It was a reversal from the 3.8% decline in the same period last year and faster than the 7.8% gross domestic product (GDP) growth logged in the final three months of 2021.
The first quarter’s GDP growth figure was the highest since the 12.1% recorded in the second quarter last year. The latest print is also within the 7-9% target of the government.
Meanwhile, inflation surged to a 40-month high of 4.9% year on year in April due to rising food and utility prices. It was faster than the 4% recorded the previous month and breached the central bank’s 2-4% target.
Meanwhile, the Fed is expected to continue hiking rates at its June and July meetings to respond to runaway inflation, after raising borrowing costs by half a percentage point earlier in May.
US inflation in April was recorded at 8.3%, cooling down from the 8.5% recorded in March, the largest year-on-year gain since December 1981, Reuters reported last week. This also marks the seventh straight month of increases in excess of 6%.
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 domestic and external sources to help fund a budget deficit capped at 7.7% of GDP this year. — Tobias Jared Tomas with Reuters