Gov’t partially awards reissued T-bonds as rates rise

The government made a partial award of the Treasury bonds (T-bonds) it offered on Wednesday at an average rate higher than secondary market levels amid expectations of faster inflation in the coming months.

The Bureau of the Treasury (BTr) raised just PHP 24.003 billion via the reissued 20-year bonds it auctioned off on Wednesday, lower than the PHP 30-billion program, despite total bids reaching PHP 46.331 billion.

The bonds, which have a remaining life of 14 years and seven months, were awarded at an average rate of 6.781%. Accepted yields ranged from 6.72% to 6.82%.

The average rate of the reissued bonds went down by 16.9 basis points (bps) from the 6.95% fetched for the series’ last award on May 14.

However, this was 3.1 bps above the 6.75% coupon for the issue. This was likewise 1.2 bps higher than 6.769% quoted for the 15-year bond, the tenor closest to the remaining life of the papers offered, and 1.5 bps above the 6.766% 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 BTr.

Tuesday’s award brought the total outstanding volume for the series to PHP 139.3 billion.

“The higher T-bond rates reflected expectations of a slight overshoot in domestic inflation above the 4% threshold in the coming months,” a trader said in an e-mail.

Higher global crude prices and a weaker dollar recently led to the higher awarded T-bond rates, as this could lead to faster local inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message. 

The Bangko Sentral ng Pilipinas (BSP) has said it expects inflation to breach the 2-4% target from May to July but ease anew beginning August.

The consumer price index (CPI) picked up to 3.9% year on year in May from 3.8% in April but slowed from 6.1% in the same month last year.

This was the fastest pace since 4.1% in November and marked the fourth straight month of quicker annual inflation.

Still, May marked the sixth straight month that inflation settled within the BSP’s 2-4% annual target.

From January to May, the CPI averaged 3.5%, matching the BSP’s full-year forecast.

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion from Treasury 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 PHP 1.48 trillion or 5.6% of gross domestic product for this year. — Aaron Michael C. Sy