THE GOVERNMENT made a partial award of the dual-tranche Treasury bonds (T-bonds) it offered on Tuesday as yields surged on fears of increased inflation pressures as the Middle East crisis continues.
The Bureau of the Treasury (BTr) raised only P21.775 billion via its dual-tenor T-bond offer, below the P35-billion target, even as total bids reached P35.069 billion.
Broken down, the Treasury borrowed only P15.539 billion from the reissued seven-year bonds, below the P25-billion plan as tenders for the issue reached just P22.147 billion.
The bonds, which have a remaining life of two years and 11 months, fetched an average rate of 7.737%. Bid yields accepted ranged from 7.5% to 7.78%.
The average rate jumped by 91.2 basis points (bps) from the 6.825% fetched for the series’ last award on Aug. 25 and was likewise 73.7 bps higher than its 7% coupon.
This was also 11.4 bps above the 7.623% fetched for the same bond series at the secondary market before Tuesday’s auction and 25.8 bps above the 7.479% quoted for the three-year bond, the benchmark tenor closest to the remaining life of the issue, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.
This brought the total outstanding volume for this bond series to P321.5 billion, the Treasury said.
Meanwhile, the government raised only P6.416 billion from the reissued 10-year T-bonds it auctioned off, below the P10-billion program even with bids for the tenor reaching P12.922 billion.
The notes, which have a remaining life of nine years and three months, were awarded at an average rate of 8.189%, with accepted yields at 8.035% to 8.3%.
The average yield for the tenor spiked by 66.4 bps from the 7.525% fetched for the series’ last award on Sept. 15 and was also 226.4 bps above its 5.925% coupon.
This was likewise higher by 10.4 bps from the 8.085% seen for the same bond series and 10.8 bps above the 8.081% quoted for the 10-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.
The partial award brought the outstanding volume for this bond issue to P355.8 billion, according to the BTr.
Both bond tenors were partially awarded as the issues fetched high bid yields, with the conflict in the Middle East and the resulting global oil price shock keeping investors cautious about longer-tenored debt, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
This, along with a plummeting peso, wage hikes and other second-round price effects, and strong El Niño conditions could add to inflationary pressures that may push the Bangko Sentral ng Pilipinas (BSP) to deliver further rate hikes, especially if the US Federal Reserve also continues its tightening cycle, he said.
Oil prices turned positive on Tuesday after a fall of about 1%, earlier in the session, as the chance of talks in Tehran eased fears of a broader Middle East supply shock, while renewed Houthi attacks on Saudi Arabia highlighted persistent risks, Reuters reported.
Brent crude futures was up 40 cents or 0.4% at $116.24 a barrel by 0718 GMT, while US West Texas Intermediate crude was up 30 cents or 0.3% at $102.07. Both fell 1% earlier in the session.
At its Oct. 22 meeting, the BSP took a more aggressive policy stance, hiking benchmark interest rates by 50 bps as it looks to quell broadening price pressures, especially as it expects El Niño to intensify inflation risks, adding to spillovers from the Middle East conflict.
It also left the door open to further tightening as needed to contain broadening price pressures.
The central bank still expects inflation to average 6.1% for this year, but raised its forecast for 2027 to 6% from 5.4% previously. It also kept its inflation estimate at 3.3% for 2028.
September headline inflation accelerated to 7.2% from 6.1% in August and 1.7% a year ago. This was the fastest in three-and-a-half years or since the 7.6% in March 2023. It also marked the seventh straight month that inflation remained above the central bank’s 3% target.
The peso’s slide against the dollar is also a concern for the BSP amid the risk of imported inflation.
On Tuesday, the currency plummeted further to close at a new record low of P64.17 versus the dollar. It also set a fresh intraday trough of P64.20.
The peso has now finished at all-time lows for seven consecutive trading days, dropping by over P1 in value just in that period. Year to date, it is now down by 8.38% or P5.38 against the dollar versus its end-2025 close of P58.79.
Meanwhile, Fed policymakers have telegraphed they will not raise short-term borrowing costs again this week, but with inflation concerns still front and center, investors believe a rate hike pause will not last for long, Reuters reported. Traders are pricing in a hike from the Fed in December.
A trader added that the government made a partial award of both bond tenors amid low demand.
This was “likely due to continued lack of market activity in the morning, with investors and market players cautiously waiting for further data this week,” the trader said in a text message.
The trader also noted that the reissued seven-year bonds’ average rate went beyond market expectations.
The BTr wants to raise P418 billion from the domestic market this month, or P168 billion in Treasury bills and P250 billion via 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. — A.M.C. Sy with Reuters