T-bonds coupon rate 30.6bps higher than benchmark

Bureau of the Treasury building in Intramuros, Manila
Bureau of the Treasury building in Intramuros, Manila

THE Bureau of the Treasury raised P34.9 billion last Tuesday after partially awarding the new 10-year Treasury bonds (T-bonds) as investors continue to seek higher yields.

The security fetched a coupon rate of 7.25 percent, which was 30.6 basis points (bps) higher than the comparable secondary market benchmark rate of 6.944 percent.

“Saw strong volume despite long maturity but at a steep price,” National Treasurer Rosalia V. De Leon said. “Market provided cushion against back-to-back rate increases to be delivered by both [US] Fed [Federal Reserve] and BSP [Bangko Sentral ng Pilipinas] in the next policy meetings to slay [the] ugly head of inflation.”

Last week, the US Federal Reserve raised the benchmark interest rate by 75 bps—its biggest hike since 1994. Fed Chairman Jerome Powell has been quoted as saying they may also increase the rate by another 50bps or 75bps in their meeting next month.

Incoming BSP Governor Felipe M. Medalla has said the central bank is likely to raise the key borrowing rate by another 25 bps on Thursday and another 25bps in August to temper inflation.

Inflation soared to 5.4 percent in May, the highest since November 2018 when inflation reached 6.1 percent. Based on Philippine Statistics Authority data, the higher inflation was caused by price surges in food, transportation and sin products.

Had the auction committee fully awarded the P35-billion offering, the coupon rate for the security would have reached 7.375 percent.

Total bids for the debt papers hit P67.3 billion, making the auction almost twice oversubscribed.

For this month, the Treasury is set to borrow P250 billion from the domestic debt market, of which P175 billion is expected to come from auctioning off Treasury Bonds and another P75 billion through it sale of T-bills.

Since the start of June, the Treasury has raised P137.4 billion out of its P200 billion offering.

As of end-April, the national government’s outstanding debt hit another record-high at P12.76 trillion, just two months before President Duterte steps down from office.

The national government’s debt-to-GDP ratio as of the first quarter of the year rose to a 17-year-high at 63.5 percent, above the internationally-recommended 60-percent threshold by multilateral lenders for emerging markets like the Philippines. It is also the highest since the country’s debt-to-GDP ratio hit 65.7 percent in 2005 under the Arroyo administration.

Image credits: Walter Eric Sy | Dreamstime.com

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