Investors continue to demand high yields

THE Bureau of the Treasury settled to partially award P19.55 billion of its P35 billion reissued 7-year Treasury Bonds offering as investors continued to demand higher yields on the back of rising consumer prices.

With a remaining term of 6 years and 11 months, the security capped at an average rate of 6.74 percent, still higher than the comparable secondary market benchmark rates.

This is up by 24.6 basis points than the Bloomberg Valuation Service (BVAL) reference rate for the 7-year tenor at 6.494 percent. Likewise, this is also above by 34 basis points compared with the BVAL rate for the security itself at 6.4 percent.

Had the auction committee fully awarded the bids for the debt paper, the average rate would have gone even higher at 6.815 percent.

Rate hike signals from both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) were priced in by the market, National Treasurer Rosalia V. De Leon said.

“Markets remain defensive with slew of news both from the Fed and the BSP to take action to fight surge in prices,” De Leon told reporters adding that the auction committee “decided to align rates with prevailing market rates.”

The Philippine Statistics Authority earlier reported that inflation quickened to 5.4 percent in May, the fastest pace since 6.1 percent in November 2018.

With this, the average inflation for the year has already reached 4.1 percent, breaching the government’s original target band of 2 percent to 4 percent for the year.

Meanwhile, inflation in the United States hit a 40-year-high of 8.6 percent in May.

Nonetheless, the tenor attracted P62.3 billion in total bids, making the auction oversubscribed.

For this month, the Treasury is set to borrow P250 billion from the domestic debt market, of which P175 billion is expected to come from auctioning off Treasury Bonds and another P75 billion through its sale of T-bills.

Since the start of June, the Treasury has raised P91.95 billion out of its P150 billion offering.

As of end-April, the national government’s outstanding debt hit another record-high at P12.76 trillion, just two months before President Duterte steps down from office.

The national government’s debt-to-GDP ratio as of the first quarter of the year rose to a 17-year-high at 63.5 percent, above the internationally recommended 60-percent threshold by multilateral lenders for emerging markets like the Philippines. It is also the highest since the country’s debt-to-GDP ratio hit 65.7 percent in 2005 under the Arroyo administration.