THE GOVERNMENT fully awarded the fresh Treasury bonds (T-bonds) it offered on Tuesday on strong demand for higher-yielding instruments amid expectations of more rate hikes here and abroad.
The Bureau of the Treasury (BTr) raised P35 billion as planned via the fresh 10-year T-bonds it auctioned off on Tuesday, with total tenders reaching P58.411 billion.
The debt papers were awarded at a coupon rate of 7.5%, 29.81 basis points (bps) higher than the 7.2019% quoted for the 10-year tenor at the secondary market before the auction, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data provided by the Treasury.
Accepted rates ranged from 7% to 7.5% for an average of 7.344%.
National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the full award was made “seeing rates are within secondary levels for comparable maturities.”
A trader likewise said the auction result was “well-within our expectations given recent statements from the Bangko Sentral ng Pilipinas (BSP).”
“With analysts now thinking that overnight reverse repurchase rate will reach 5%, seven- to 10-year tenors will likely be 250 to 300 bps higher,” the trader said in a text message.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the full award is “consistent with the fact that the average yield of 7.344% is close to the comparable PHP BVAL yield.”
“The increase in the 10-year T-bond yield is also in line with the higher benchmark 10-year US Treasury yield amid aggressive Federal Reserve rate hikes in the quest to significantly bring down elevated US inflation,” Mr. Ricafort said in a text message.
BSP Governor Felipe M. Medalla last week said the central bank will consider another big rate hike in their Nov. 17 policy meeting to support the peso and prevent its depreciation from further stoking inflation.
Mr. Medalla said they are looking at a 50-bp or 75-bp increase next month to help cool inflation and ease currency pressures stemming from a strong dollar amid the Fed’s hawkish stance.
The BSP has raised benchmark rates by 225 bps since May, with its policy or overnight reverse repurchase facility rate now at 4.25%.
Philippine headline inflation was at 6.9% last month, up from 6.3% in August and 4.2% in the same month last year. It matched the 6.9% print in October 2018 and was the fastest since the 7.2% pace logged in February 2009.
The September print marked the sixth straight month that inflation breached the central bank’s 2-4% target for the year.
For the first nine months, headline inflation averaged 5.1%, faster than the 4% seen in the same period last year but below the BSP’s 5.6% forecast for 2022.
Meanwhile, the Fed is likely to deliver another large rate hike at its November meeting as inflation remains high, with more increases also expected to be on the table until next year.
The US central bank has raised rates by 300 bps since March and will next meet on Nov. 1-2.
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. — Luisa Maria Jacinta C. Jocson
