Gov’t partially awards new 3-year Treasury bonds

The government made a partial award of the new three-year Treasury bonds (T-bonds) it offered on Tuesday at a coupon rate higher than secondary market levels after inflation accelerated for the first time in seven months in August.

The Bureau of the Treasury (BTr) raised just PHP 21.187 billion via the fresh three-year bonds it auctioned off on Tuesday versus the PHP 30-billion program, as the offer was undersubscribed, with total bids at just PHP 28.987 billion.

The bonds were awarded at a coupon rate of 6.25%. Accepted yields ranged from 6.11% to 6.373% for an average of 6.222%.

The coupon fetched for the tenor was 4.6 basis points (bps) higher than the 6.204% quoted for the three-year bond at the secondary market before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The bonds fetched higher yields following the release of data showing that inflation picked up in August, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The coupon rate fetched for the papers was at the “higher end of market expectations” due to faster-than-expected inflation last month, a trader likewise said in a phone interview.

Headline inflation picked up to a two-month high of 5.3% in August from 4.7% in July, data released by the Philippine Statistics Authority on Tuesday showed.

August was the first time headline inflation quickened year on year in seven months, or since it quickened to 8.7% in January from 8.1% in December 2022.

Still, this was below the 6.3% print in August 2022, and was within the 4.8-5.6% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

However, this was above the 4.9% median estimate in a BusinessWorld poll of 18 analysts conducted last week.

August also marked the 17^th consecutive month that the consumer price index (CPI) was above the BSP’s 2-4% target for the year.

For the first seven months, inflation averaged 6.6%, well above the central bank’s 5.6% forecast for the year.

The BSP expects inflation to return to its target range by the end of the year, but its chief said policy easing remains far off amid lingering price risks.

Following the release of inflation data, the central bank said it “stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second round effects.”

The BSP last month kept benchmark interest rates steady for the third straight meeting in a “hawkish pause.”

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 120 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. — AMCS