FOR the second straight government securities auction this month under the Marcos Jr. administration, the Bureau of the Treasury fully awarded the debt papers and gave in to investors’ demand for higher yields.
With its decision, the auction committee on Tuesday raised P35 billion from its sale of reissued 7 year-Treasury Bonds (T-bonds).
The T-bonds, which have a remaining life of 3 years and 7 months, fetched an average rate of 5.908 percent. This is higher by 33.5 basis points than the Bloomberg Valuation (BVAL) Service Reference Rate for the tenor at 5.573 percent. Likewise, this is also up by 16.6 basis points than the BVAL rate for the security itself which stood at 5.742 percent.
National Treasurer Rosalia V. De Leon said investors are now expecting the Bangko Sentral ng Pilipinas (BSP) to unleash a more aggressive rate hike after the Philippine Statistics Authority reported last Tuesday that inflation hit a 3-year-high in June at 6.1 percent.
The inflation rate in June was the highest since November 2018’s 6.1 percent. This was also higher than the 5.4 percent recorded in May this year and the 3.7 percent recorded in June last year.
“The average rate at 5.9 is about 20bps [basis points] higher than secondary level,” De Leon told reporters. “Markets priced in expectations of BSP turning hawkish with June print of 6.1 percent higher than consensus.”
The National Treasurer said the Treasury “will have to calibrate” if yields zoom past the benchmark secondary market rates
“If cash remains ample and rate exceed tolerance level; then we will reject [bids],” De Leon said adding the auction is “always a careful balancing act.”
To tame inflation, the BSP earlier raised the interest rate on its overnight reverse repurchase facility by 25bps to 2.5 percent. Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 2 percent and 3 percent, respectively. New BSP Governor Felipe M. Medalla earlier signaled a 25-bps hike in the next policy meeting of the Monetary Board in August.
Last May, the government’s economic managers raised their projection for the country’s inflation to 3.7 percent to 4.7 percent, way above the original 2 percent to 4 percent target band. For this month, the government will still try to borrow P200 billion from the local debt market in July, the first month of the incoming Marcos administration, despite investors’ relentless demand for high rates. Broken down, the Treasury will be auctioning off next month P140 billion in T-bonds and another P60 billion in T-bills to investors to raise the amount.
As of end-May, the national government’s outstanding debt dipped to P12.5 trillion from a record-high of P12.76 trillion as of end-April due to its repayment of a P300 billion short-term, zero-interest loan from BSP.
Image credits: Walter Eric Sy | Dreamstime.com