Gov’t fully awards fresh 3-year bonds

The government made a full award of the new three-year bonds it offered on Wednesday even as the coupon was higher than secondary market levels following the increase in global crude oil prices amid geopolitical tensions.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned from the fresh three-year bonds it auctioned off on Wednesday as total bids reached PHP 53.279 billion, almost twice as much as the program.

The bonds were awarded at a coupon rate of 6%. Accepted yields ranged from 5.75% to 6% for an average rate of 5.9%.

The coupon fetched for the tenor was 7.9 basis points (bps) higher than the 5.921% quoted for the three-year bond at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“Bond yields ticked higher this week, tracking the increase in global crude oil prices amid the ongoing conflict in the Red Sea,” a trader said in an e-mail.

The 10-year US Treasury yield briefly popped above 4% overnight for the first time in two weeks before closing at 3.9406%, up 8 basis points on the day, Reuters reported.

Early on Wednesday, oil prices were marginally higher after closing lower on Tuesday. US crude futures drifted 0.1% higher to $70.43 a barrel, after dropping more than 1% on Tuesday, while Brent was flat at $75.86 a barrel.

Iranian-backed Houthis rebels in Yemen have vowed to continue their attacks on shipping in the Rea Sea until Israel halts the conflict in Gaza, and warned that it would attack US warships if the militia group itself was targeted.

Houthi militants fired two anti-ship ballistic missiles into the southern Red Sea, though no damage was reported, the US Central Command said late on Tuesday.

Still, the average rate fetched for the three-year bond was slightly lower than the secondary market level amid expectations that the US Federal Reserve will cut rates as early as March, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted in a Viber message.

The US central bank last month kept the fed funds rate unchanged at 5.25-5.5% for the third straight time after it hiked borrowing costs by 525 bps from March 2022 to July 2023.

Mr. Ricafort added that the lower average rate came as the market expects slower inflation in December.

A BusinessWorld poll last week yielded a median estimate of 4% for December headline inflation, within the central bank’s 3.6-4.4% forecast and slower than the 4.1% in November and the 8.1% in December 2022.

If realized, December would be the first time that inflation was within the central bank’s 2-4% target and the slowest since the 3% print in February 2022.

This would bring the 2023 inflation average to 6%, matching the Bangko Sentral ng Pilipinas’ baseline forecast.

The Philippine Statistics Authority will release December consumer price index data on Friday.

The BTr wants to raise PHP 195 billion from the domestic market this month, or PHP 75 billion via Treasury bills and PHP 120 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year. — A.M.C. Sy with Reuters