THE GOVERNMENT made a partial award of the dual-tenor Treasury bonds (T-bonds) it auctioned off on Tuesday as the market asked for higher yields on expectations of elevated inflation and rates as the Middle East conflict remains unresolved.
The Bureau of the Treasury (BTr) raised only P35.94 billion via the dual-tranche T-bond offer, below the P50-billion target, with total bids for both tenors reaching P58.46 billion.
Broken down, the Treasury borrowed P27.617 billion through the reissued seven-year bonds, below the P30-billion offer, even as the tenor drew bids worth P37.52 billion.
The papers, which have a remaining life of three years and four months, fetched an average rate of 7.307%, with bid yields ranging from 7.15% to 7.4%.
This was 37.4 basis points (bps) higher than the 6.933% fetched for the series’ last award on May 5 and 30.7 bps above the 7% coupon for the issue.
The average yield was also 21.2 bps above the 7.095% fetched for the same bond series and 16.1 bps higher than the 7.146% quoted for the four-year bond, the benchmark tenor closest to the remaining life of the issue, at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.
Meanwhile, the government raised just P8.323 billion from the reissued 25-year T-bonds, below the P20 billion placed on the auction block, despite tenders for the tenor totaling P20.94 billion.
The notes, which have a remaining life of eight years and four months, were awarded at an average rate of 7.58%, with accepted yields at 7.45% to 7.65%.
The average rate of the issue rose by 83.3 bps from the 6.747% fetched for the series’ last award on April 7, but was still 167 bps below the 9.25% coupon.
This was 13.2 bps above the 7.448% fetched for the same bond series and 7.6 bps higher than the 7.504% quoted for the eight-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.
Both bond tenors offered on Tuesday were partially awarded as yields were higher than comparable secondary market rates, a trader said in a text message.
“There was low demand for both reissuances, likely due to risk-off sentiment for the eight-year tenor,” the trader said.
T-bond rates climbed to track higher global yields as the market expects the Bangko Sentral ng Pilipinas (BSP) to stay hawkish, especially as the Middle East war continues, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“Investors are waiting for the peak in bond yields or to top out before taking investment positions to maximize the yield to be locked in amid higher inflation and inflation expectations…,” he said.
Iran and Israel halted attacks on each other on Monday after an appeal from US President Donald J. Trump, though tensions still ran high as Tehran threatened to resume strikes if Israel continued to hit Iran-backed Hezbollah in Lebanon, Reuters reported.
Mr. Trump said he could have an “idea” for an Iran deal within a few days, and investors were hopeful. Previous efforts to reach a lasting agreement with Iran to end the more than three-month-old war have made little headway and left oil prices and the greenback elevated.
Treasury yields remained broadly elevated on rate hike expectations, with those on the two-year note hovering near a 15-month peak while the benchmark US 10-year was firmly above 4.5%.
BSP Governor Eli M. Remolona, Jr. earlier said that they are considering more aggressive policy action, including an inter-meeting hike, to help curb spiraling prices as the Middle East conflict continues to stoke inflation.
The Monetary Board on April 23 delivered its first rate increase in over two years, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%. Its next meeting is on June 18.
In May, Philippine headline inflation settled at 6.8%, slowing from 7.2% in April but still faster than the 1.3% in the same month last year.
This was the third month in a row that the print breached the central bank’s 2%-4% tolerance range, and brought the five-month average past the goal at 4.5%.
The BTr is looking to raise P268 billion from the domestic market this month, or P128 billion via Treasury bills and P140 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy with Reuters