Gov’t fully awards bond offer on strong demand, dovish BSP bets

THE GOVERNMENT fully awarded the reissued 25-year Treasury bonds (T-bonds) it offered on Tuesday at a lower average rate amid strong demand and even as inflation reached a fresh peak in November.

The Bureau of the Treasury (BTr) raised P35 billion as planned from its offer of reissued 25-year papers on Tuesday as total bids reached P79.44 billion.

The bonds, which have a remaining life of 11 years and 11 months, were awarded at an average rate 7.189%, down by 97.9 basis points (bps) from the 8.168% quoted for the papers when they were last offered on Nov. 15, with accepted yields ranging from 6.9% to 7.25%.

The average rate was also 206.1 bps below the issue’s 9.25% coupon and 21.25 bps lower than the 7.4015% quoted for the same bond series at the secondary market before the auction, based on PHP Bloomberg Valuation Service Reference Rates data from the BTr. However, it was 21.31 bps higher than the 6.9759% yield for the 10-year bond, the tenor closest to the remaining life of the issue, at the secondary market.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the full award was made amid “strong demand and a significant decline in rates, even as November inflation settled at 8%.”

She said rates dropped on expectations that inflation had peaked and amid dovish signals from the Bangko Sentral ng Pilipinas (BSP).

Asked if the BTr will consider including longer tenors in its borrowing plan for next month after the successful auction, Ms. De Leon said they may do so “if the market pricing is good.”

“Despite the higher-than-expected inflation print, the average yield for today’s auction settled within expectations given that some dealers and investors are still armed with liquidity from maturing government securities,” a trader said in a text message on Tuesday.

“Yields on peso bonds have been steady with downward bias given the view that rate hikes will no longer be aggressive relative to rate hikes done in recent months,” the trader added.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion likewise said the accepted rates were within expectations.

“Nevertheless, a huge chunk of the tenders was rejected, and it seems the market is still pricing in the Bangko Sentral ng Pilipinas’ monetary policy move. With inflation now rising to 8%, it is hard not to expect the BSP tweaking rates by another round of 50 bps by the December meeting,” he said in a Viber message.

Headline inflation stood at 8% in November, its quickest pace in 14 years, driven by rising food costs due to typhoon damage. This was faster than both the 7.7% in October and the 3.7% in the same month last year.

It was also the fastest headline print since the 9.1% in November 2008 and was higher than the 7.8% median estimate in a BusinessWorld poll last week.

For the first 11 months, inflation averaged 5.6% versus the 4% seen in the same period a year ago. This is still lower than the BSP’s 5.8% full-year forecast but well above its 2-4% target.

BSP Governor Felipe M. Medalla last week said the central bank is likely to hike interest rates anew this month, but the Monetary Board has yet to decide whether to tighten by 25 or 50 bps on Dec. 15 following dovish hints from the US Federal Reserve chief.

Fed Chair Jerome H. Powell last week said it was time to slow the pace of upcoming rate increases. The US central bank now widely expected to raise rates by just 50 bps in its last policy meeting for the year to be held on Dec. 13-14 following four straight 75-bp hikes.

The BSP has raised borrowing costs by 300 bps since May, while the Fed has hiked rates by 375 bps since March.

The BTr wants to raise P135 billion from the domestic market this month, or P30 billion through Treasury bills and P105 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.6% of gross domestic product this year. — Luisa Maria Jacinta C. Jocson