THE GOVERNMENT made a partial award of the reissued Treasury bonds (T-bonds) it offered on Tuesday as its average rate surged amid expectations of a delayed start to the Bangko Sentral ng Pilipinas’ (BSP) planned easing cycle due to sticky inflation.

The Bureau of the Treasury (BTr) raised just P16.633 billion via the reissued 20-year bonds it auctioned off on Tuesday, below the P30-billion program, despite total bids reaching P34.927 billion or higher than the amount on offer.

The bonds, which have a remaining life of 19 years and 10 months, were awarded at an average rate of 7.017%, with accepted yields ranging from 6.9% to 7.08%.

The average rate of the reissued bonds surged by 82.8 basis points (bps) from the 6.189% quoted for the papers when they were last offered on March 19 and was 76.7 bps above the 6.25% coupon for the se-ries.

The average rate was also 21.8 bps higher than the 6.799% quoted for the 20-year bond and 21.2 bps above the 6.805% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The higher T-bond awarded rate today reflected renewed inflationary concerns and prospects of likely fewer BSP rate cuts this year,” a trader said in an e-mail on Tuesday.

BSP Governor Eli M. Remolona, Jr. last week said they could begin their easing cycle in early 2025 if price risks persist, but they could still cut rates by 25 bps in the third quarter if inflation is within target and economic growth is weak.

The Monetary Board kept its target reverse repurchase rate unchanged at a near 17-year high of 6.5% this month. It hiked borrowing costs by 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Headline inflation picked up to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year and marked the fourth straight month that the consumer price index was within the BSP’s 2-4% annual target.

For the first quarter, headline inflation averaged 3.3%, below the central bank’s baseline forecast of 3.8% and risk-adjusted forecast of 4%.

Recent expectations of later and fewer cuts from both the BSP and the US Federal Reserve versus earlier bets of aggressive easing caused the T-bond yields to rise from the previous auction, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of rate cut expectations, Reuters reported.

Markets are pricing in a 46% chance of the Fed’s first rate cut starting in September, with November not far behind at 42%, according to the CME FedWatch Tool. That was in sharp contrast to just a few weeks ago when markets were betting on June for the US monetary easing cycle to begin.

Investors will have another chance to assess the strength of the US economy this week, with first-quarter gross domestic product data on Thursday and personal consumption price expenditures index, the Fed’s preferred measure of in-flation, on Friday.

The US central bank last month kept its target rate at the 5.25%-5.5% range for a fifth straight meeting following cumulative hikes worth 525 bps from March 2022 to July 2023.

The average yield for the T-bonds also rose due to the movements in global crude prices recently due to tensions between Israel and Iran, Mr. Ricafort added.

On Tuesday, oil prices recovered some of the sharp losses overnight as investors continued to assess the situation in Middle East, Reuters reported. Brent futures rose 0.4% to $87.34 a barrel, while US crude gained 0.4% to $82.25 a barrel.

Iran launched more than 300 drones and missiles on Israel in what it said was retaliation against a suspected Israeli bombing of its embassy compound in Damascus, Reuters reported.

On Monday, European Union foreign ministers agreed in principle to expand sanctions on Iran by agreeing to extend restrictive measures on Tehran’s weapons exports of any drone or missile to Iranian proxies and Russia.

The BTr wants to raise P195 billion from the domestic market this month or P75 billion from Treasury bills and P120 billion via T-bonds.

The government borrows from local and foreign sources to help fund its P1.48-trillion budget deficit, which is capped at 5.6% of gross domestic product for this year. — A.M.C. Sy with Reuters

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