THE GOVERNMENT raised P7.932 billion worth of fresh seven-year Treasury bonds (T-bonds) yesterday as yields spiked amid concerns over rate hikes here and in the US.
The Bureau of the Treasury made a partial award of the seven-year debt papers its auctioned off yesterday, which will mature on April 12, 2025.
Bids by banks reached P20.668 billion, double the P10 billion that the government planned to raise on Tuesday.
The papers fetched a coupon rate of 5.75%, seeing an average yield of 5.712% higher than the 4.39% average yield fetched during the previous auction, but lower than the 6.8143% rate at the secondary market prior to the fund-raising exercise.
The yield on the paper at the secondary market was steady at 6.8143% as trading closed yesterday.
“We decided for a partial award to temper the increase in the rates because otherwise, the seven-year [papers] would have to set a new rate for the benchmark,” National Treasurer Rosalia V. De Leon told reporters after the auction.
Had the government fully awarded the seven-year T-bonds, the coupon rate would have been at 5.875%, which Ms. De Leon said is “too high.”
Asked why banks asked for higher returns yesterday, Ms. De Leon said investors continued to price in possible rate hikes from the Bangko Sentral ng Pilipinas (BSP) as well as the US Federal Reserve.
“We’re on the road towards the next [BSP] policy meeting on May 10 and of course, again, about the possible three rate hikes from the Fed this year. It’s still on the table.”
Local inflation has been on a steady ascent for four months, hitting a three-year peak of 4.3% in March under the 2012 base year amid rising fuel prices and higher commodity costs due to the tax reform law.
The continuous acceleration of inflation reinforced market expectations of a rate hike from the BSP within the year.
Meanwhile, Fed Chair Jerome H. Powell said last Friday that the US monetary authority will likely need to keep raising interest rates to keep inflation under control, Reuters reported.
He said this following the Fed’s decision to raise its benchmark borrowing rate by a quarter-point during the March meeting of the Federal Open Market Committee.
Meanwhile, sought for comment, a bond trader said the auction result was expected.
“This is within expectations since we’re expecting higher amount of auctions for the quarter,” the trader said, adding that the new coupon is also reflecting the investors’ concern regarding the domestic inflation.
“We’ve had that concern since the start of the year… and it continues to be a concern with oil prices elevated.”
This quarter, the Treasury is holding two auctions per week — one for T-bonds and another for Treasury bills — to reflect increased borrowing requirements for the quarter.
The government is set to raise P325 billion via the domestic market this quarter through auctions of securities.
It plans to borrow P888.23 billion from local and foreign sources this year to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal