UMVA has learned that the government's auction of dual-tenor Treasury bonds on Tuesday resulted in a partial award, as market participants demanded higher yields amid expectations of elevated inflation and interest rates due to the ongoing Middle East conflict.
The Bureau of the Treasury raised only P35.94 billion from the dual-tranche T-bond offer, falling short of the P50-billion target, despite total bids for both tenors reaching P58.46 billion. This cautious approach reflects the market's current sentiment.
Broken down, the Treasury borrowed P27.617 billion through the reissued seven-year bonds, which had a remaining life of three years and four months. These bonds fetched an average rate of 7.307%, with bid yields ranging from 7.15% to 7.4%, indicating a clear upward trend.
This average yield was 37.4 basis points higher than the 6.933% fetched for the series' last award on May 5 and 30.7 bps above the 7% coupon for the issue. Such increases suggest that investors are adjusting their expectations.
The government also raised P8.323 billion from the reissued 25-year T-bonds, below the P20 billion offered, despite tenders for the tenor totaling P20.94 billion. The notes were awarded at an average rate of 7.58%, with accepted yields at 7.45% to 7.65%.
This average rate of the issue rose by 83.3 bps from the 6.747% fetched for the series' last award on April 7. The significant increase reflects growing concerns about inflation and interest rates.
A trader noted that both bond tenors offered on Tuesday were partially awarded as yields were higher than comparable secondary market rates. Low demand for both reissuances was likely due to risk-off sentiment for the eight-year tenor.
T-bond rates climbed to track higher global yields as the market expects the central bank to stay hawkish, especially with the Middle East war continuing. This has investors waiting for the peak in bond yields before taking investment positions.
Investors are hopeful for a potential Iran deal, with US President expressing optimism about a possible agreement within days. However, previous efforts have made little headway, leaving oil prices and the greenback elevated.
Treasury yields remained broadly elevated on rate hike expectations, with those on the two-year note hovering near a 15-month peak. The central bank is considering more aggressive policy action to curb spiraling prices.
The Monetary Board recently delivered its first rate increase in over two years, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%. The next meeting is scheduled for June 18, and all eyes are on the central bank's next move.
Philippine headline inflation settled at 6.8% in May, slowing from 7.2% in April but still faster than the 1.3% in the same month last year. This has brought the five-month average past the goal at 4.5%, highlighting the ongoing challenge.
The Treasury is looking to raise P268 billion from the domestic market this month, with a significant portion allocated to T-bonds. The government's borrowing strategy is crucial in helping fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year.
