THE GOVERNMENT made a partial award of the reissued Treasury bonds (T-bonds) it offered on Wednesday as yields climbed on broad risk-off sentiment amid the re-escalation of the Middle East conflict.
The Bureau of the Treasury (BTr) borrowed P29.561 billion from the reissued 20-year bonds, just short of the P30-billion target despite total tenders reaching P36.111 billion.
This brought the outstanding volume for this bond series to P592.4 billion, it said in a statement after the auction.
“The average yield for the security… was capped at 7.218% to align the award with market sentiment,” it added.
The reissued papers, which have a remaining life of four years and 10 months, were awarded at an average rate of 7.218%, with accepted yields from 7.15% to 7.25%.
The average yield rose by 7.9 basis points (bps) from the 7.139% fetched for the series’ last award on Aug. 4, but was still 78.2 bps below the 8% coupon for the issue.
This was also 11 bps higher than the 7.108% fetched for the same bond series and 12.3 bps above the 7.095% quoted for the five-year debt — the benchmark tenor closest to the remaining life of the papers on offer — at the secondary market before Wednesday’s auction, based on PHL Bloomberg Valuation Service Reference Rates data provided by the BTr.
The government partially awarded its bond offer, with the average yield being at the higher end of market expectations as demand was weak, likely due to the rise in global bond yields due to fresh attacks between the United States and Iran, a trader said in a text message.
Bond rates tracked US Treasury yields higher, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message, with the hostilities in the Gulf region pushing up global oil prices anew and adding to domestic inflation pressures.
This could lead to further monetary tightening from the Bangko Sentral ng Pilipinas (BSP), he said.
Global bonds sold off sharply on Wednesday, extending a rout that is raising borrowing costs to multi-decade highs as the Middle East conflict pushes up energy prices, playing into investor fears about inflation and ballooning government debt, Reuters reported.
Sovereign yields are a reference point for asset prices across financial markets and the higher price of money means higher mortgage rates for consumers and tough choices for government spending as funding costs climb.
The yield on 10-year US Treasury notes rose to a near three-year high of 4.81%, and a further climb toward 5% is likely to unsettle already jittery stock markets.
Japan’s 10-year yield was perched above 3%, a 30-year high. Australia’s 10-year government bond yields rose to 5.198%, their highest level in over 15 years.
Global bond routs have become increasingly common in the past few months as the energy shock due to the Middle East war rattles investor nerves about rising debt loads across major economies and inflation risks.
The US Treasury stepped into markets last month to cap a rise in long-end bond yields, although the impact of the move was short-lived with the yield on 30-year Treasuries back near its highest in 19 years.
Energy cost pressures continue to dog policymakers. Brent crude futures rose 1% to $95.61 per barrel on Wednesday, after gaining nearly 6% in the previous session.
Investor focus has also been on what the Federal Reserve may do to contend with inflation that has remained above the central bank’s 2% target, with hawkish comments from Fed Chair Kevin Warsh last week leading traders to ramp up rate-hike bets.
Meanwhile, at its Aug. 27 meeting, the Philippine central bank delivered its third straight rate hike in a preemptive move to guard against inflation pressures from volatile global oil prices, the looming strong El Niño, and potential minimum wage increases.
The Monetary Board raised its benchmark rate by 25 bps to an over one-year high of 5%, with BSP Governor Eli M. Remolona, Jr. signaling more hikes as needed to steer inflation back to their 3% target.
This brought cumulative increases since April to 75 bps.
In the seven months to July, headline inflation averaged 5%. The BSP sees the consumer price index averaging 6.1% this year, well above its 2%-4% tolerance band.
The Monetary Board’s last two policy reviews this year are on Oct. 22 and Dec. 17.
For this month, the BTr wants to raise up to P380 billion from the domestic market, or P250 billion via Treasury bills and P130 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion or 5.4% of gross domestic product this year. — Aaron Michael C. Sy with Reuters
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