THE GOVERNMENT rejected all bids for reissued seven-year Treasury bonds (T-bonds) it offered on Tuesday as the market asked for higher rates due to expectations of further monetary tightening amid inflation pressures.
The Bureau of the Treasury (BTr) did not accept any tenders for the reissued seven-year securities — which have a remaining life of six years and 10 months — it offered on Tuesday even as total bids reached P62.253 billion, higher than the programmed P35 billion.
Rates bid by participants ranged from 6.849% to 7%. Had the offer been fully awarded, the average rate for the bonds on offer would have reached 6.947%, 44.7 basis points (bps) higher than the 6.5% coupon and up 51.9 bps from the 6.428% average fetched for the series when it was first offered on May 17.
This is also 31.97 bps above the 6.6273% 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.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the government rejected all bids for the seven-year bonds as investors asked for too high a risk premium as they expect the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) to continue raising borrowing costs.
“The market [was] providing too much buffer with expected aggressive rate hikes to come,” Ms. De Leon said.
“We are in the middle of US Fed and BSP hikes and the market is trying to be cautious also given persistent inflationary pressures. The market is still wary to invest aggressively given the bearish outlook for bonds in the months to come,” the first trader said.
“Aside from rate hikes, the BTr is about to release its borrowing program for the next month and as we transition to a new administration. So, market players are just really trying to be patient and vigilant about all these catalysts,” the trader added.
The second trader said investors want higher yields from longer bond tenors as inflation is expected to continue rising, with the average for this year expected to exceed the BSP’s 2-4% target.
The BSP last week raised benchmark interest rates by 25 bps for a second straight meeting to cool rising prices and continued to signal gradual normalization, even as it said it is prepared “to take all necessary policy action” to bring inflation within its target over the medium term.
The central bank raised its average inflation forecast for this year to 5% from 4.6% previously, well above its 2-4% target. For 2023, the BSP now sees inflation averaging 4.2% from 3.9% previously and then slowing to 3.3% in 2024, back within target.
Headline inflation stood at 5.4% in May, the fastest in three and a half years, amid the continued rise in food and fuel prices.
Meanwhile, a week after hiking rates by 75 bps, which was the biggest increase since 1994, Fed Chair Jerome H. Powell told a US Congress hearing on Thursday that the US central bank is committed to bringing down inflation despite risks of a downturn, but said it is not trying to engineer a recession.
Markets are pricing in another 75-bp hike at the US central bank’s July meeting as several Fed officials have said they would support more aggressive hikes as inflation remains high.
Tuesday’s T-bond auction was the last one for the month. The government raised just P88.937 billion via bonds against its P175-billion program for June after making partial awards and rejections due to rising rates.
With Treasury bill (T-bill) awards in June only reaching P62.414 billion against the P75-billion program, the government was only able to raise P151.351 billion out of its P200-billion plan for the month.
For July, the BTr wants to raise P200 billion from the domestic market, or P60 billion via T-bills and P140 billion from T-bonds. It is set to offer longer bond tenors next month, with maturities ranging as high as 14 years.
The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — Diego Gabriel C. Robles