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Rates on 3-year bonds rise on inflation report

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THE GOVERNMENT partially awarded the reissued three-year Treasury bonds (T-bonds) it offered on Tuesday as rates climbed due to faster-than-expected inflation data.

The Bureau of the Treasury raised just P16.586 billion yesterday via the three-year T-bonds, failing to fill the P30-billion program even as the tenor attracted bids worth P37.35 billion.

The average rate for the three-year papers jumped by 27.2 basis points (bps) to 4.014% against the 3.742% fetched when the tenor was last offered on Dec. 10.

At the secondary market, the three-year bonds were quoted at 3.997%, based on the PHP Bloomberg Valuation Service Reference Rates.

Deputy Treasurer Erwin D. Sta Ana said the market is taking a “wait-and-see” approach as the headline inflation rate for December last year picked up and amid rising geopolitical tensions between US and the Middle East.

“[With] the inflation rate today for December at 2.5% and of course the developing geopolitical tension in the Middle East, we felt that the market is still at a ‘wait-and-see’ at this time, considering that these are developing as we speak, hence the turnout,” Mr. Sta Ana told reporters after the auction on Tuesday.




The Philippine Statistics Authority (PSA) reported on Tuesday that inflation in December picked up to 2.5%, taking the full-year average to 2.5%.

The December pace was higher than the median estimate of 2.1% in a BusinessWorld poll of 13 economists last week.

Still, the 2019 print was well within the 2-4% official target range for the year, even as it was a tad higher than the Bangko Sentral ng Pilipinas’ (BSP) full-year forecast of 2.4%.

Sought for comment, a bond trader said the auction result — even as it was only a partial award — was “within market expectations” since the tenor was already trading within secondary market rates.

Reuters reported that oil prices in the global market slipped by 1.5% on Tuesday, reversing the two-percent hike on Monday, “as investors reconsidered the likelihood of Middle East supply disruptions in the wake of the United States killing a top Iranian military commander.”

Yesterday, Reuters reported that Brent crude fell 1.5% to $67.86 a barrel, leaving the $70-per-barrel level it reached the previous day.

Meanwhile, Mr. Sta Ana said the market is on wait-and-see mode despite the announcement of BSP Governor Benjamin E. Diokno of a possible 25-bp rate cut this year “so maybe, inflation expectations would come into play.”

Amid developments here and abroad, he said they feel the market is “still holding off from bidding aggressively.”

“Usually, [investors are] risk-off, especially if major economies are involved. Before with the US-China trade tension [and] every time that there is a an issue in the Middle East on oil, so we could expect a risk-off attitude is actually being observed [currently],” he explained.

The Treasury has set a P420-billion local borrowing program this quarter, broken down into P240 billion in Treasury bills and P180 billion via T-bonds.

The government plans to raise P1.4 trillion this year from local and foreign lenders to plug its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — B.M. Laforga









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