Philippines: Government sells T-bonds at higher rate

MANILA, Philippines — The government yesterday borrowed P35 billion from the debt market at a higher yield to investors due to the impending rate hike by the US Federal Reserve.

The Bureau of the Treasury issued all of the P35 billion worth of reissued three-year Treasury bonds (T-bonds), with a remaining term of two years and 11 months, on offer.

The T-bonds fetched a yield of 4.598 percent on a spread between 4.3 percent and 4.85 percent, up by 38.8 basis points from the 4.21 percent the debt paper obtained during its maiden offering in April.

The yield also exceeded by 45.9 bps the BVAL Reference Rate, which is the standard for securities, of 4.139 percent for three-year bonds.

Demand for the securities reached P41.492 billion, oversubscribing the auction by 1.85 times. However, the bid total dropped by 23 percent from the P53.578 worth of tenders in April.

National Treasurer Rosalia de Leon said the Treasury decided to make a full award in spite of the increase in rates for three-year T-bonds.

She said the debt market, in asking for higher yields, priced in the impact of the upcoming rate hike that the Fed will take to contain inflation.

Further, De Leon said investors stayed on the defensive on fears inflation will shoot up to as high as five percent in April as projected by the Bangko Sentral ng Pilipinas (BSP).

The BSP, in its forecast, said April inflation may settle anywhere between 4.2 and five percent due to elevating prices of electricity, fuel, as well as meat and fish. The BSP also raised the possibility that it may trigger its first rate hike in its June meeting.

“Markets are bracing for hawkish pivot from Fed with 50 bps rate hike in tandem with a balance sheet reduction to battle inflation. Onshore inflation forecast for April is at 4.6 percent and BSP has issued a warning that it may start hiking this June,” De Leon said.

“Interestingly, in 2018 when inflation hovered at 4.6 percent, the three-year rate was [pegged] at 4.79 percent,” she said.

The Treasury intends to borrow P200 billion from domestic investors in April as part of efforts to raise financing to fund government programs and projects.