Treasury rejects all tenders for reissued 3.5-year bonds

THE GOVERNMENT rejected all bids for reissued 3.5-year Treasury bonds (T-bonds) it offered on Tuesday as the market asked for higher yields amid expectations of more rate hikes here and abroad.

The Bureau of the Treasury (BTr) did not accept any tenders for the reissued 3.5-year securities that have a remaining life of three years and five months.

Total bids for the tenor reached P40.732 billion, lower than P106.32 billion when the bond series was first offered on Aug. 2. At that auction, the government made a full award of its P35-billion offer of fresh papers, even awarding another P10 billion via a tap facility offer, as the strong demand seen caused yields to come in below secondary market levels.

Had the Treasury fully awarded the bonds at its Tuesday auction, the tenor’s average rate would have jumped by 43.9 basis points (bps) to 5.592% from the 5.153% average quoted for the bond at the Aug. 2 offer and by 34.2 bps from its 5.25% coupon.

This would also be 13.67 bps above the 5.4553% quoted for the four-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Reference Rates data provided by the BTr.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that while demand for the T-bond offer on Tuesday was “still good,” investors wanted an “excessive buffer” as they anticipate the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) to continue raising their respective benchmark interest rates.

Analysts said the market wanted higher rates as Philippine inflation remains elevated, which could prompt the BSP to hike borrowing costs further.

“It looks like the market has no appetite for this bond given the CPI (consumer price index) print,” a trader said.

The trader said the BTr can also afford to reject high bids following its recent offering of retail Treasury bonds. The Treasury raised P420.448 billion from the 5.5-year retail bonds it offered from Aug. 23 to Sept. 2. The RTBs carry a coupon of 5.75% and will be issued on Sept. 7.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bond yields climbed amid still high inflation and a weaker peso.

Fed Chair Jerome H. Powell said at the Jackson Hole symposium on Aug. 26 that the US central bank will hike interest rates as needed and keep them high for some time to bring inflation back within target. The US central bank has raised rates by 225 bps so far since March.

BSP Governor Felipe M. Medalla last week said the Fed’s next policy move will be a “big factor” to consider for the Monetary Board at their Sept. 22 meeting as the US central bank’s review will happen on Sept. 20-21.

The BSP has increased borrowing costs by 175 bps since May as it seeks to rein in rising prices.

Mr. Medalla said the central bank is concerned about the impact of the peso’s continued depreciation against the dollar on inflation. The US central bank chief’s hawkish Jackson Hole speech caused the dollar to close at multi-decade highs, causing other currencies to weaken, including the Philippine peso.

Headline inflation slowed to 6.3% in August from the near four-year high of 6.4% seen in July, the Philippine Statistics Authority reported on Tuesday.

While the result was within the BSP’s 5.9-6.7% forecast for the month, it was the fifth consecutive month inflation went beyond the central bank’s 2-4% target. It was also faster than the 4.4% headline print logged in August 2021.

For the first eight months, inflation averaged 4.9%, faster than 4% in the same period a year prior but below the BSP’s 5.4% forecast for 2022.

On Monday, the peso closed at a new record low of P56.999 per dollar after hitting P57 intraday. As of Sept. 5, the local unit has depreciated by 11.76% or P5.999 from its P51 close on Dec. 31, 2021.

The BTr wants to raise P200 billion from the domestic market this month, 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 7.6% of gross domestic product this year. — D.G.C. Robles