THE GOVERNMENT fully allocated the reissued 10-year Treasury notes (T-bonds) which it auctioned on Tuesday at a lower average rate despite expectations of another central bank hike.
The Bureau of the Treasury (BTr) on Tuesday raised 35 billion pesos as expected through its offering of 10-year reissued bonds which have a remaining life of nine years and 10 months. Total bids reached 128.83 billion pesos, more than triple the amount of the auction block.
Rates granted on Tuesday ranged from 5.785% to 5.87%, bringing the bond’s average yield to 5.813%, 143.70 basis points (bps) below the 7.25% coupon obtained for the series during its first offer on June 21.
The average rate was also 15.08 basis points lower than the 5.9638% quoted for 10-year bonds in the secondary market ahead of Tuesday’s auction, based on PHP Bloomberg Valuation Reference Rates data provided by the BTr. .
To meet the strong demand seen for Tuesday’s offering, the Treasury opened its payment facility to raise an additional 15 billion pesos via bonds for a yield to maturity of 5.813%.
National Treasurer Rosalia V. de Leon told reporters in a Viber message that it was another “impressive” auction as the market’s preference for long maturities caused the bid to hit rates below secondary market levels, even with the Bangko Sentral ng Pilipinas (BSP) expected to raise borrowing costs again at their Thursday meeting.
“Expectations continue to be challenged sale after sale. This one was strong and it is ahead of an expected 50 basis point rise in BSP on Thursday,” the first trader said.
“Sentiment has indeed improved for local bonds given the decline in global oil prices, which in turn is easing inflation fears,” the trader added.
The second trader said the bond’s average yield fell amid strong demand for supply despite the impending central bank rate hike, with investors likely looking to put their money into higher-yielding instruments. high in a context of continuing global uncertainties.
“Investors in this space may already be looking beyond this year as the global growth outlook weakens,” the trader added.
The BSP is expected to raise benchmark rates again on Thursday, with most analysts forecasting a 50 basis point increase as inflation remains high.
A BusinessWorld poll last week showed that 16 out of 18 analysts expect the Monetary Board to raise rates at its Aug. 18 meeting.
For 13 analysts, the central bank could deliver a hike of 50 bps, while three analysts see a hike of 25 bps. Only two analysts expect the BSP to keep borrowing costs unchanged.
BSP Governor Felipe M. Medalla earlier said the central bank’s Monetary Council could raise rates by 50 basis points at its meeting this week as inflation hit 6.4% in July, a high of nearly four years. It was also faster than June’s 6.1% and 3.7% a year ago.
Over the first seven months, headline inflation averaged 4.7%, higher than the 4% seen in the same period of 2021 and the central bank’s 2-4% target for inflation. year, but lower than its forecast of 5%.
The Monetary Board has raised rates by a total of 125 basis points since May, including an off-cycle hike of 75 basis points last month.
Accelerating inflation continues to cloud the global economic outlook as Russia’s war in Ukraine, as well as supply chain issues, have driven up commodity and energy prices and a tightening of financial conditions.
Amid rising prices, most central banks have moved to reverse the ultra-loose monetary policy they adopted during the coronavirus pandemic to support growth, raising fears of a global slowdown.
In particular, the US Federal Reserve has been very aggressive in raising its benchmark rate from near zero, stoking fears of recession in the world’s largest economy and causing political fallout in emerging markets like the Philippines.
The BTr wants to raise 215 billion pesos domestically this month, or 75 billion pesos through treasury bills and 140 billion pesos through treasury bonds.
The government is borrowing from local and external sources to help finance a budget deficit capped at 7.6% of gross domestic product this year. — DGC Robles