Gov’t partially awards reissued Treasury bonds

The government made a partial award of the reissued Treasury bonds (T-bonds) it offered on Tuesday at an average rate higher than secondary market levels on expectations of quicker April inflation.

The Bureau of the Treasury (BTr) raised P27.476 billion via the reissued 20-year bonds it auctioned off on Tuesday, below the P30-billion program, despite total bids reaching P36.842 billion or higher than the amount on offer.

The bonds, which have a remaining life of seven years and two months, were awarded at an average rate of 7.058%, with accepted yields ranging from 6.9% to 7.18%.

The average rate of the reissued bonds jumped by 75.9 basis points (bps) from the 6.299% quoted for seven-year papers at the BTr’s April 2 auction. Still, this was 94.2 bps below the 8% coupon for the series.

The rate was likewise 11.8 bps higher than the 6.94% quoted for the seven-year bond and 5.8 bps above the 7% 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 higher T-bond rate offered today reflected expectations of a potential uptick in domestic headline inflation for April following the release of the BSP (Bangko Sentral ng Pilipinas) forecast inflation range,” a trader said in an e-mail on Tuesday.

The BSP on Tuesday said headline inflation could have quickened further in April and even breached its 2-4% annual target.

The central bank said that the April consumer price index (CPI) may have settled within 3.5% to 4.3% amid higher prices of rice, meat and gasoline, as well as the peso’s depreciation against the dollar.

The lower end of the BSP’s estimate would be slower than the 3.7% print in March as well as the 6.6% logged in April 2023.

However, the high end of the range would be the fastest since the 4.9% rate in October 2023. This would also mark the first time since November 2023 that the CPI exceeded the central bank’s 2-4% goal.

Headline inflation averaged 3.3% in the first quarter, within the central bank’s annual target and below its baseline forecast of 3.8% and risk-adjusted forecast of 4% for the year.

The increase in awarded rates were also in line with higher US Treasury yields recently, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

The shifting expectations on US rates have lifted Treasury yields and the dollar, dominating the currency market, Reuters reported.

On Monday, US Treasury yields pulled back from last week’s highs ahead of a Federal Reserve meeting and crucial economic data expected later in the week.

Benchmark 10-year notes last rose 13/32 in price to yield 4.6156% from 4.669% late on Friday.

The 30-year bond last rose 22/32 in price to yield 4.7357% from 4.782% late on Friday.

The Fed began a two-day policy meeting overnight.

The BTr wants to raise P210 billion from the domestic market in May, or P60 billion from Treasury bills and P150 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product for this year. — AMCS with Reuters