Gov’t rejects all bids for five-year T-bonds

The government rejected all bids for the reissued five-year Treasury bonds (T-bonds) it offered on Tuesday as investors asked for higher rates even as inflation slowed sharply last month.

The Bureau of the Treasury (BTr) did not accept any tenders for its offer of PHP 30 billion in reissued five-year bonds on Tuesday despite total demand reaching PHP 53.426 billion, higher than the amount on the auction block.

Had the Treasury made a full award, the bonds, which have a remaining life of four years and 11 months, would have fetched an average rate of 6.219% as tendered yields ranged from 6.09% to 6.27%.

This average rate is 14.6 basis points (bps) higher than the 6.073% quoted for the papers when they were first offered on Jan. 9 and 9.4 bps above the 6.125% coupon fetched for the series.

It is also 13.3 bps above the 6.086% seen for the same bond series and 5.6 bps higher than the 6.163% quoted for the five-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The government did not award any five-year bonds due to higher bid yields compared with secondary market rates, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The flexibility to reject higher bid yields would have been due to the upcoming retail Treasury bond (RTB)… in view of P700-billion RTBs maturing by early March 2024,” Mr. Ricafort said.

The BTr is looking to raise at least PHP 30 billion from its offer of five-year retail Treasury bonds, which will also have an exchange component for holders of three- and five-year RTBs maturing next month, it announced on Tuesday.

The Treasury will hold a rate-setting auction for the retail bonds on Feb. 13, which will also be the start of the public offer period and submission of bond exchange offers. The offering is scheduled to end on Feb. 23, unless closed earlier by the Treasury.

The new retail bonds will be issued on Feb. 28.

“The Bureau of Treasury has likely decided to reject today’s bids to provide investors with sufficient time to reassess their local bond yield expectations following the softer domestic inflation report released earlier today,” a trader said in an e-mail on Tuesday.

“The latest easing headline inflation trend would also support lower borrowing costs for the government in the coming weeks or months, especially if the Federal Reserve starts cutting rates later in 2024 that could be matched locally if inflation is well within the Bangko Sentral ng Pilipinas’ (BSP) inflation target of 2-4% for the coming months,” Mr. Ricafort added.

Headline inflation slowed to 2.8% in January from 3.9% in November and 8.7% a year ago, the Philippine Statistics Authority reported on Tuesday.

This was the slowest print recorded in three years or since the 2.3% seen in October 2020, during the coronavirus pandemic.

The January consumer price index (CPI) was below the 3.1% median estimate in a BusinessWorld poll last week and was at the lower end of the BSP’s 2.8-3.6% forecast for the month.

It also marked the second straight month that inflation was within the central bank’s 2-4% annual target.

The BSP on Tuesday said slower January CPI is consistent with its view that inflation is likely to ease this quarter due to a higher base and easing supply issues.

However, it noted that inflation may accelerate anew by the second quarter due to lingering risks, such as the impact of El Niño weather conditions.

“The balance of risks to the inflation outlook still leans significantly towards the upside. Key upside risks are associated with potential pressures emanating from higher transport charges, increased electricity rates, higher oil prices, and higher food prices due to strong El Niño conditions. Meanwhile, the impact of a relatively weak global recovery and the government measures to mitigate the effects of El Niño could ease some price pressures,” the BSP said.

“Looking ahead, the Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident. The BSP will consider the latest inflation and GDP (gross domestic product) outturns for the Monetary Board’s policy meeting on Feb. 15,” the central bank added.

The BSP raised benchmark interest rates by 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%.

Meanwhile, the Fed kept its target rate steady at the 5.25-5.5% range for the fourth straight meeting last week.

Fed Chair Jerome H. Powell said after their two-day review that they are unlikely to ease their policy stance in their March 19-20 meeting amid lingering inflation risks.

The US central bank hiked borrowing costs by 525 bps from March 2022 to July 2023.

The BTr plans to raise PHP 210 billion from the domestic market this month, or PHP 60 billion via Treasury bills and PHP 150 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 or PHP 1.39 trillion. — AMCS