Gov’t makes partial award of reissued T-bonds

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THE GOVERNMENT partially awarded the reissued seven-year Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher rates as they expect headline inflation to have reached a new peak last month.

The Bureau of the Treasury (BTr) raised just P22.85 billion from its offer of seven-year papers on Tuesday, less than the programmed P35 billion even as total bids reached P39.144 billion.

The bonds, which have a remaining life of two years and six months, were awarded at an average rate of 5.746%, 134.4 basis points (bps) lower than the 7.09% quoted for the bond when it was last offered on Dec. 11, 2018 and 0.4 bp below the 5.75% coupon for the issue.

However, this was 44.8 bps above the 5.298% quoted for the same bond series at the secondary market and 19.5 bps higher than the 5.551% yield seen for the three-year tenor at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the BTr made a partial award as investors asked for higher rates.

“The market continues to provide cushion as high inflation remains persistent. That being the case, the BSP (Bangko Sentral ng Pilipinas) is expected to deliver another rate increase,” Ms. De Leon said.

Likewise, a trader said that the market remained defensive ahead of the release of September inflation data on Wednesday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise attributed the partial award to higher bid yields “ahead of the latest inflation data that is expected to pick up.”

Investors also priced in hawkish signals from the Federal Reserve, as well as the BSP amid the weakening peso, Mr. Ricafort said in a Viber message.

Headline inflation likely reached a fresh peak last month amid higher electricity rates and food prices, as well as the continued weakening of the peso versus the dollar, analysts said.

A BusinessWorld poll of 13 analysts yielded a median estimate of 6.7% for the September consumer price index, near the lower end of the central bank’s 6.6-7.4% estimate for the month.

If realized, this would be faster than the 6.3% print in August as well as the BSP’s 5.6% forecast and 2-4% target for the year.

BSP Governor Felipe M. Medalla last month said the central bank may need to continue hiking rates, with the peso’s continued decline against the dollar due to a hawkish US Federal Reserve posing an upside risk to inflation. The Monetary Board has hiked rates by 225 bps since May to rein in prices.

The peso closed at another all-time low of P59 per dollar on Monday, dropping 37.5 centavos from its P58.625 finish on Friday, Bankers Association of the Philippines data showed.

Year to date, the peso has weakened by P8 or 15.6% from its Dec. 31, 2021 close of P51.

Meanwhile, the US central bank has raised borrowing costs by 300 bps since March, with Fed chief Jerome H. Powell earlier saying they are strongly committed to bringing down inflation and may need to keep rates high for longer to achieve this goal.

The BTr wants to raise P200 billion from the domestic market this month, or P60 billion through Treasury bills and P140 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles

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