Gov’t rejects all bids for reissued bonds

The government rejected all bids for the reissued 20-year Treasury bonds (T-bonds) it offered on Wednesday as investors asked for higher rates amid hawkish signals from the Philippine central bank chief.

The Bureau of the Treasury (BTr) did not accept any tenders for its offer of PHP 30 billion in reissued 20-year securities, which have a remaining life of 15 years and five months.

This, even as total bids for the tenor reached PHP 35.302 billion, above the auctioned volume.

Had the Treasury fully awarded the bonds on Wednesday, the issue’s average rate would have jumped by 158.6 basis points (bps) to 6.927% from the 5.341% average quoted for the bond when it was last offered on Nov. 28, 2019, with yields ranging from 6.723% to 7.240%.

This would also be 17.7 bps above the issue’s 6.75% coupon, 30 bps higher than the 6.627% quoted for the 15-year bond, and 29.9 bps above the 6.628% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee decided to fully reject bids for the Treasury Bonds (FXTN 20-23) in today’s auction. With a remaining term of 15 years and 5 months the average rate for the reissued T-bonds reached 6.927% had it been awarded, with PHP 35.3 billion in total tenders,” the BTr said in a statement on Wednesday.

“The total outstanding volume for the series still stands at P83.8 billion,” it added.

The Treasury did not accept any bids for the reissued papers as yields seen were higher than secondary market levels due to hawkish signals from the Bangko Sentral ng Pilipinas (BSP), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. on Tuesday said the central bank’s stance remains hawkish, with rate cuts not on its radar, as inflation is still elevated.

The Monetary Board kept benchmark interest rates steady for a third straight meeting last week, but said it is prepared to resume tightening if needed amid risks to inflation.

The BSP left its overnight reverse repurchase rate unchanged at a near 16-year high of 6.25%. Interest rates on the overnight deposit and lending facilities were maintained at 5.75% and 6.75%, respectively.

The central bank raised borrowing costs by 425 bps from May 2022 to March 2023 to tame inflation.

The Monetary Board will hold its next policy meeting on Sept. 21.

“The results of today’s auction somehow reflects the tepid market appetite on new bond placements this week. This is mainly due to participants remaining on the sidelines ahead of potential policy comments from Fed Chair Powell in the Jackson Hole Symposium on Friday,” a trader added in an e-mail.

US Federal Reserve Chair Jerome H. Powell is scheduled to deliver a speech on the economic outlook at the Kansas City Jackson Hole Economic Policy Symposium on Aug. 25, where markers expect his tone to be hawkish following the release of the minutes of their July meeting that hinted on more rate hikes.

The Fed raised interest rates by 25 bps last month, bringing its benchmark overnight rate to a range between 5.25% and 5.5%.

The US central bank has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Sept. 19-20 to review policy.

The BTr wants to raise PHP 225 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 150 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy