Gov’t fully awards 10-year bonds at higher rate

THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday even as its yield climbed due to concerns over rising inflation.

The Bureau of the Treasury (BTr) raised P35 billion as planned via the reissued 10-year T-bonds it offered on Tuesday. The papers have a remaining life of nine years and nine months.

The offering was more than twice oversubscribed, attracting P73.59 billion in tenders, bigger than the P61.83 billion in bids seen when the papers were last offered on Sept. 14.

This caused the Treasury to open its tap facility to raise another P5 billion from the papers.

The average yield on the 10-year bonds jumped by 44.3 basis points to 4.689% on Tuesday from the 4.246% fetched when the series was last offered.

This was also higher than 4.363% fetched for the tenor at the secondary market prior to the auction, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon said the average rate of the papers offered on Tuesday tracked US Treasury yields after the Federal Reserve said it could start reducing its asset purchases by November.

The rate of the benchmark 10-year papers went up to 1.48% on Monday from just 1.31% a week ago, based on US Department of the Treasury’s website.

The Fed, following its two-day policy meeting, last week said it could begin tapering its monthly bond purchases by November if jobs data will remain strong, Reuters reported.

Interest rate hikes may also begin next year once its bond-buying program ends, as nine of 18 Fed policy makers believe borrowing costs have to increase in 2022.

The yield on the reissued 10-year bonds also rose due to higher inflation forecasts for 2021 and 2022 from the Bangko Sentral ng Pilipinas (BSP), Ms. De Leon said.

The BSP last week hiked its inflation forecasts as supply issues continue to push food prices higher. It raised its outlook for this year to 4.4% from 4.1% previously. For next year, the BSP also hiked its forecast to 3.3% from 3.1%.

Headline inflation quickened to 4.9% in August from 4% in July, its fastest pace in more than two years. This brought the eight-month average to 4.4%, above the central bank’s 2-4% target for the year.

Meanwhile, a bond trader said the rate fetched for the T-bonds was within market expectations, given the Fed’s hawkish hints and the BSP’s inflation outlook.

The trader added that the movement of bond rates will depend on the BTr’s borrowing plan for October.

“We can expect it to go higher, especially if the BTr decides to continue with the same borrowing mix for October. If there will be no 10-year paper next month, then we are likely seeing the peak for this space,” the trader said via Viber.

The BTr has raised P262 billion from the local debt market this month, excluding the results of the tap facility offer on Tuesday. This is above the P250-billion program for the month after it opened the tap facility on several occasions.

Broken down, it borrowed P185 billion via T-bonds, higher than its plan to raise P175 billion. It also raised P77 billion from the short-term T-bills, slightly higher than the P75-billion program.

The government wants to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.3% of gross domestic product. — B.M. Laforga