Gov’t partially awards reissued 7-year T-bonds on hawkish Fed

THE GOVERNMENT partially awarded the reissued Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher yields on indications of half-point hikes from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised just P15.69 billion via the reissued seven-year T-bonds it auctioned off on Tuesday, less than half the programmed P35 billion, even as the offering attracted P40.59 billion in bids.

The debt papers, which have a remaining life of six years and four months, were awarded at an average rate of 5.601%, up by 91.2 basis points (bps) from the 4.689% quoted when the series was last offered on Jan. 25.

The average yield fetched for the debt papers was also higher than the 5.4858% quoted for the seven-year 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.

Had the Treasury made a full award of its offer, the reissued bonds would have fetched an average rate of 5.881%.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the market has remained defensive after US Federal Reserve Chair Jerome H. Powell hinted on the possibility of 50-bp rate hikes at the next Federal Open Market Committee (FOMC) meetings.

“Meanwhile, higher inflation is seen this month with still elevated oil and commodities prices,” Ms. De Leon said.

A trader likewise said investors asked for higher returns in response to inflation risks and Mr. Powell’s indications of a 50-bp rate hike in May.

The US central bank must move “expeditiously” to bring too-high inflation to heel, Mr. Powell said on Monday, adding that it could use bigger-than-usual interest rate hikes if needed to do so, Reuters reported.

“The labor market is very strong, and inflation is much too high,” Mr. Powell told a National Association for Business Economics conference. “There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability.”

In particular, he added, “if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”

Fed policy makers last week raised interest rates for the first time in three years and signaled ongoing rate hikes ahead. Most of them see the short-term policy rate — pinned for two years near zero — at 1.9% by the end of this year, a pace that could be achieved with quarter-percentage-point increases at each of their next six policy meetings.

By the end of next year, Fed policy makers expect the central bank’s benchmark overnight interest rate to be at 2.8%, bringing borrowing costs to a level where they would actually start biting into growth. Most Fed policy makers see the “neutral” level as somewhere between 2.25% and 2.5%.

Meanwhile, the Philippine central bank is widely expected to maintain policy rates at record lows on Thursday even amid rising inflation risks in line with its signals it will continue to support economic recovery.

A BusinessWorld poll last week showed 15 out of 17 analysts still anticipate the Bangko Sentral ng Pilipinas (BSP) Monetary Board keeping rates on hold on March 24, the second policy review this year.

Analysts believe the BSP will remain focused on providing support for a more sustainable economic recovery despite inflationary risks caused by the Russia-Ukraine war.

The BTr wants to raise P250 billion from the domestic market this month, or P75 billion via T-bills and P175 billion from T-bonds.

The government borrows from local and external sources to help fund a budget deficit seen to hit 7.7% of gross domestic product this year. — Jenina P. Ibañez with Reuters