Gov’t rejects all bids for T-bonds

THE GOVERNMENT rejected all bids for the Treasury bonds (T-bonds) it offered on Tuesday as players asked for higher yields as global markets continued to reel due to mounting inflation concerns amid the prolonged Middle East conflict.

The Bureau of the Treasury (BTr) rejected all bids for the reissued 10-year bonds it auctioned off, even as total demand reached P33.675 billion, above the P30-billion on offer.

With this, the total outstanding volume for the series remained at P199.5 billion, the Treasury said in a statement after the auction.

Had the government made a full P30-billion award of the reissued bonds, which have a remaining life of seven years and three months, the average rate would have been at 7.915%. This was 127.2 basis points (bps) higher than the 6.643% fetched for the series’ last award on April 21 and 128.9 bps above the 6.625% coupon for the issue.

It was 30.3 bps higher than the 7.612% fetched for the same bond series and 31.1 bps above the 7.604% quoted for the seven-year paper — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The government chose to turn down all tenders as bid yields surged well above comparable secondary market rates, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Investors have been waiting for the peak in bond yields before taking investment positions to maximize the yield to be locked in amid higher inflation and inflation expectations recently as the Strait of Hormuz remains closed,” he said.

Higher global oil prices due to the prolonged war have also pushed up bond yields worldwide, Mr. Ricafort said.

“The BTr fully rejected all the bids for the [reissued bonds] as the bids were too high, even on the low end,” the first trader said in a text message. “The BTr finally drew the line as the bids earlier were deemed too high. Subdued market activity and steady upward yield movement led to this.”

“That rejection is long overdue as it is one of the reasons why bond yields have been increasing. Investors think that the BTr has been aggressive in awarding bids in the past couple of auctions,” the second trader added.

On Tuesday, bonds steadied following a steep sell-off after US President Donald J. Trump paused a planned attack on Iran and claimed there was a good chance of a nuclear deal, sending oil prices lower, Reuters reported.

Mr. Trump said on Monday he had paused an attack against Iran to allow time for negotiations to take place on a deal to end the war, after Tehran sent a new peace proposal to Washington.

He subsequently said there was a “very good chance” the US could reach an agreement with Iran to prevent Tehran from obtaining a nuclear weapon.

Investors remained cautious after being rattled in the previous session by a weekend drone strike in the United Arab Emirates.

Brent crude futures fell nearly 2% to $109.94 a barrel on the back of Mr. Trump’s comments, while US crude was down 1.54% to $106.99 per barrel, though both remained more than 50% above their prewar levels.

The fall in oil prices helped stem a steep sell-off in global bonds on Tuesday, although worries remain about any lasting inflationary shock from the Iran war.

Yields on the benchmark 10-year US Treasury note eased from a more than one-year high to 4.6034% in Asian trade, and the two-year yield was down slightly to 4.0674%.

Overnight, G7 finance ministers acknowledged mounting concerns over public debt and bond market volatility as they met in Paris.

Markets are now pricing in rate hikes from major central banks this year on expectations policymakers will have to tighten policy to combat a resurgence in inflation driven by higher-for-longer energy prices.

Philippine headline inflation surged to 7.2% in April from the 4.1% in March and 1.4% a year ago as the global oil shock pushed up prices of food and utilities. This was the fastest print in over three years or since the 7.6% recorded in March 2023.

April also marked the second straight month that the consumer price index was above the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% tolerance band.

For the first four months, inflation averaged 3.9%.

The Monetary Board on April 23 delivered its first hike in over two years, raising the policy rate by 25 bps to 4.5% in a preemptive move to temper the spillover effects of rising oil prices and ensure inflation expectations remain anchored.

BSP Governor Eli M. Remolona, Jr. has also left the door open to further tightening via a succession of modest hikes to help combat surging prices.

The BTr wants 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. — A.M.C. Sy with Reuters