Gov’t makes full award of bonds as inflation eases further in November

The government made a full award of the reissued Treasury bonds (T-bonds) it auctioned off on Tuesday at a lower average rate after headline inflation eased in November.

The Bureau of the Treasury (BTr) raised PHP 20 billion as planned via the reissued 10-year bonds it offered on Tuesday as total bids reached PHP 40.651 billion, or more than twice the amount on the auction block.

The bonds, which have a remaining life of nine years and eight months, were awarded at an average rate of 6.224%, with accepted yields ranging from 6.15% to 6.244%.

The average rate of the reissued bonds dropped by 55.7 basis points (bps) from 6.781% quoted for the papers when they were last offered on Nov. 14. This was also 40.1 bps below the 6.625% coupon for the series.

However, the average yield was 1.1 bps higher than the 6.213% quoted for the 10-year bond and 6.3 bps above the 6.161% 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 average rate of the reissued bonds declined from the previous award following slower inflation last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The release of softer-than-expected Philippine headline inflation for November 2023 has likewise lowered expectations for bond yields,” a trader said in an e-mail.

Headline inflation slowed to a 4.1% in November from 4.9% in October and 8% in November 2022, data released by the Philippine Statistics Authority on Tuesday showed. This was the lowest rate seen since March 2022’s 4%.

This was near the lower end of the Bangko Sentral ng Pilipinas’ (BSP) 4-4.8% estimate for the month and was below the 4.4% median estimate of 15 economists in a BusinessWorld poll conducted last week.

For the first 11 months, inflation averaged 6.2%, faster than 5.6% in the same period last year and still well above the BSP’s 2-4% target and 6% baseline forecast for 2023.

T-bond rates declined amid expectations of rate cuts by the US Federal Reserve next year, Mr. Ricafort added.

Markets are pricing in a rate cut from the Fed by the first half of 2024.

The US central bank kept its target rate steady at the 5.25%-5.5% range for a second straight time during its Oct. 31-Nov. 1 meeting.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March 2022.

The Fed will hold its last policy review for this year on Dec. 12-13.

The BTr wants to raise PHP 60 billion from the domestic market this month, or PHP 20 billion via T-bills and PHP 40 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