THE GOVERNMENT partially awarded the fresh seven-year Treasury bonds (T-bonds) it auctioned off on Tuesday even as the offer was oversubscribed as investors asked for higher returns on expectations of more rate hikes here and abroad.
The Bureau of the Treasury (BTr) raised just P24.125 billion from its offer of new seven-year papers on Tuesday, less than the programmed P35 billion, even as total bids reached P54.105 billion.
The debt papers were awarded a coupon rate of 7%, 22.2 basis points (bps) higher than the 6.7781% quoted for the seven-year tenor at the secondary market before the auction, based on the PHP Bloomberg Valuation (BVAL) Reference Rates data provided by the BTr.
Rates bid by participants ranged from 6.625% to 7.1% for an average of 6.943%.
A bond trader said in a Viber message that the Treasury likely capped bids for the seven-year bond at 7% in anticipation of next week’s auction.
“Next week, they will issue a 10-year paper. So, if they fully awarded today’s auction, the coupon would have been 7.25%,” the bond trader said.
UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a separate Viber message that the Treasury made a partial award as investors asked for rates that were higher than it was willing to pay.
“This usually happens when interest rates are on the uptrend and the market would like to take advantage of the government’s financing needs,” Mr. Asuncion said.
Rates of government securities have been rising as persistent global inflation concerns have fanned expectations of further tightening from central banks, in particular from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).
The Fed has raised key rates by 300 bps since March, and policy makers have said further hikes may be needed to rein in stubbornly high inflation.
Meanwhile, BSP Governor Felipe M. Medalla last week said the central bank may need to hike rates further to anchor inflation expectations as the Fed is expected to remain aggressive, which will put pressure on the peso and affect prices.
The BSP has raised borrowing costs by 225 bps so far since May.
The BTr wants to raise P200 billion from the domestic market this month, or P60 billion through Treasury bills and P140 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. — Ana Olivia A. Tirona