Bond yields surge on CPI data

THE GOVERNMENT partially awarded the dual-tranche Treasury bonds (T-bonds) it offered on Tuesday as the market asked for higher yields, with faster-than-expected April headline inflation fueling expectations of more rate hikes by the Bangko Sentral ng Pilipinas (BSP).

The Bureau of the Treasury (BTr) raised only P28.718 billion via its dual-tenor T-bond offer, below the P30 billion placed on the auction block, even as total bids reached P40.516 billion.

Broken down, the Treasury borrowed P20 billion as programmed from the reissued seven-year bonds it auctioned off as bids for the tenor totaled P24.637 billion.

This brought the outstanding volume for the series to P185.4 billion, the Treasury said in a statement.

The papers, which have a remaining life of three years and five months, fetched an average rate of 6.933% with bids ranging from 6.6% to 7.04%.

This was up 83.4 basis points (bps) from the 6.099% fetched for the series’ last award on Nov. 29, 2023, but was 6.7 bps below the 7% coupon for the issue.

The average yield was also 49.7 bps higher than the 6.436% fetched for the same bond series and 47.5 bps above the 6.458% quoted for the three-year bond, the benchmark tenor closest to the remaining life of the issue, at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

Meanwhile, the government sold only P8.718 billion in reissued 20-year T-bonds, below the P10-billion goal, even as tenders reached P15.519 billion. This brought the outstanding volume for the series to P264.9 billion.

The notes, which have a remaining life of 18 years and 21 days, were awarded at an average rate of 7.705%, with accepted yields at 7.33% to 7.9%.

The average rate of the issue jumped by 113.3 bps from the 6.572% fetched for the series’ last award on Jan. 27 and was also 73 bps above its 6.975% coupon.

This was likewise 79.5 bps higher than the 6.91% fetched for the same bond series and also 79.9 bps above the 6.906% quoted for the 20-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.

“The higher-than-expected April CPI (consumer price index) data released this morning, followed up by the prevailing hawkish sentiment from the BSP, as well as the Middle East conflict’s lack of resolution, likely influenced the elevated yields awarded in the auction earlier,” a trader said in a text message.

The trader said yields fetched for the bonds exceeded market expectations.

Bond yields surged as the latest inflation report bolstered bets of further monetary tightening by the BSP to temper spiraling consumer costs, especially as the war continues to drive up global oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Demand for the offering was weak, especially for the longer 20-year tenor, as players are likely hesitant to lock in their cash as geopolitical risks continue to stoke market volatility and macroeconomic uncertainty, he added.

Philippine headline inflation accelerated to an over three-year high of 7.2% in April as surging global oil prices due to the war continued to drive up food, fuel, and utility costs, the Philippine Statistics Authority said on Tuesday. This was up from the 4.1% print in March and 1.4% a year ago.

This was the fastest headline print since the 7.6% seen in March 2023. It also blew past the 5.5% median in a BusinessWorld poll of 17 analysts and the central bank’s 5.6%-6.4% estimate for the month.

April likewise marked the second straight month that the headline print was above the BSP’s 2%-4% annual target. For the first four months, inflation averaged 3.9%.

Last month, the BSP’s Monetary Board hiked benchmark interest rates by 25 bps for the first time in over two years, bringing the policy rate to 4.50%, as the Middle East war threatens the inflation outlook.

BSP Governor Eli M. Remolona, Jr. has signaled further tightening ahead via “a succession of modest rate hikes” amid worsening inflation expectations. The central bank raised its inflation forecasts to 6.3% for 2026 and 4.3% for 2027 from 5.1% and 3.8% previously, both above its 2%-4% tolerance band.

“The BSP is committed to fulfilling its primary mandate of slow inflation and will take necessary actions to ensure inflation returns to its 3% target within a reasonable time. It will remain vigilant for spillover effects, data-driven, and ready to act as needed,” Mr. Remolona said in a statement on Tuesday following the April data release.

The BTr targets to raise P268 billion from the domestic market this month, or P128 billion via Treasury bills and P140 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy