EconomyEditor's PickTreasury partially awards reissued 20-year bonds

November 8, 2022
BW FILE PHOTO

THE GOVERNMENT partially awarded the reissued 20-year Treasury bonds (T-bonds) it offered on Tuesday as investors wanted higher rates ahead of the Bangko Sentral ng Pilipinas (BSP) policy-setting meeting next week, where it is expected to deliver a large increase.

The Bureau of the Treasury (BTr) raised P30.64 billion from its offer of 20-year bonds on Tuesday, less than the programmed P35 billion, even as total bids reached P41.6 billion.

The bonds, which have a remaining life of four years and 10 months, were awarded at rates ranging from 6.8% to 7.5%, bringing the average to 7.131% or 146.8 basis points (bps) lower than the 8.599% quoted for the bond when it was first offered on Sept. 4, 2007 and also 149.4 bps below the 8.625% coupon for the issue.

The average rate was likewise 60.27 bps lower than the 7.7337% yield seen for the 20-year tenor at the secondary market prior to the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

However, this was 28.36 bps higher than the 6.8474% quoted for the five-year tenor at the secondary market before Tuesday’s auction.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the government made a partial award of its offer as the average rate was “still within secondary level, with a modest premium to account for illiquidity.”

Ms. De Leon said investors also wanted higher yields as they expect the BSP to match the US Federal Reserve’s latest policy move at its meeting next week, especially with inflation yet to peak, with damage due to recent typhoons seen adding to supply and price pressures.

The first trader likewise said the bonds were awarded high rates amid rate hike expectations.

“Also, the bonds were illiquid so the players required higher rates,” the trader said in a phone call.

The second trader said the award was “surprisingly aggressive” as the market expected the Treasury to reject bids above 7% prior to the auction.

“This may likely put more upward pressure on rates, especially with the remaining scheduled auctions being longer,” the second trader said in a text message.

BSP Governor Felipe M. Medalla last week said the central bank will deliver a 75-bp hike at its Nov. 17 meeting to match with the Fed’s move last week as it seeks to stabilize prices.

The BSP has delivered 225 bps in hikes since May, while the Fed has now raised rates by 375 bps since March.

Meanwhile, agricultural damage due to Typhoon Paeng (international name: Nalgae) hit P3.41 billion, affecting 89,142 farmers and fishers, with volume of production loss at 207,854 metric tons (MT) and 89,011 hectares of agricultural areas.

The BTr wants to raise P215 billion from the domestic market this month, or P75 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. — Luisa Maria Jacinta C. Jocson

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