THE Bureau of the Treasury was forced to fully award P35 billion in reissued 7-year Treasury bonds (T-bonds) at a higher rate on Tuesday as investors continued to take the risk and bet on longer tenors amid soaring consumer prices.
With a remaining term of 6 years and 6 months, the reissued debt papers fetched an average rate of 6.76 percent, higher than the benchmark secondary market rates.
This was up by 27.8 basis points than the Bloomberg Valuation (BVAL) Service Reference Rate for the 7-year tenor of 6.482 percent.
Likewise, this was also higher by 17.6 basis points than the BVAL rate for the security itself at 6.584 percent.
However, the Treasury said the debt papers’ average yield was lower than the original coupon rate of 6.875 percent set on its first issue in January 2019.
Nonetheless, the auction was more than twice oversubscribed, with total bids amounting to P92 billion.
Asked whether the Bureau of the Treasury is willing to accept higher yields as the new normal, National Treasurer Rosalia V. De Leon said: “Not okay but, given current market environment, [we] need to provide reasonable return to investors for risks they are taking.”
Recently, the Treasury has been giving in to investors’ demand for higher yields on the back of expectations that the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve will be more aggressive in hiking interest rates to tame inflation.
The BSP has so far raised the interest rates by a total of 50 basis points this year —25 basis point hike each in its May 19 and June 23 policy meetings. These hikes have brought the policy rate to 2.5 percent.
But the BSP seems not to be done yet as Governor Felipe M. Medalla earlier said the BSP is prepared to unleash a more aggressive rate hike of another 50 basis points in its next policy meeting in August, noting that the central bank is “strongly committed to maintaining price stability.”
The government’s economic team under the Marcos administration is now expecting inflation to remain “elevated” in the coming months as fuel and food prices rose as a result of the ongoing Russia-Ukraine war and supply chain disruptions.
Last Friday, the Cabinet-level Development Budget Coordination Committee adjusted upward its inflation forecast for this year to 4.5 to 5.5 percent, higher than the 3.7 to 4.7 percent projection adopted by former President Duterte’s economic team in May this year.
For this month, the government is set to borrow P200 billion from the local debt market.
Broken down, the Bureau of the Treasury will be auctioning off next month P140 billion in T-bonds and another P60 billion in Treasury bills 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.
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