THE GOVERNMENT rejected all bids for the reissued 20-year Treasury bonds (T-bonds) it auctioned off on Tuesday as investors asked for higher yields amid signals of delayed rate cuts by the Bangko Sentral ng Pilipinas (BSP).
The Bureau of the Treasury (BTr) did not accept any tenders for its offer of P30 billion in reissued 20-year bonds on Tuesday despite total demand reaching P37.555 billion, higher than the amount on the auction block.
Had the Treasury made a full award, the bonds, which have a remaining life of 14 years and nine months, would have fetched an average rate of 6.987% as tendered yields ranged from 6.8% to 7.299%.
This average rate is 39.4 basis points (bps) higher than the 6.593% quoted for the papers when they were last offered on Nov. 22, 2023 and 23.7 bps above the 6.75% coupon fetched for the series.
It is also 18 bps above the 6.807% seen for the same bond series and 21.5 bps higher than the 6.772% quoted for the 15-year bond at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.
“Participants requested for higher rates today after BSP Governor Remolona hinted of domestic policy rate cuts in early 2025 rather than the initially expected cuts in late 2024. This knee-jerk reaction has likely compelled BTr to reject bids for today due to lingering uncertainty on near-term central bank policy expectations,” a trader said in an e-mail on Tuesday.
The window for the Philippine central bank to start reducing the key rate in the second half of 2024 is narrowing as the risk that inflation may breach its target for a third straight year rises, according to BSP Governor Eli M. Remolona, Jr., Bloomberg reported.
“The upside risks have become worse than before, and that’s the reason we’ve stayed hawkish,” Mr. Remolona said in an interview on Monday at the Bangko Sentral ng Pilipinas in Manila. “The policy rate is on the tight side. So by being hawkish, what we mean is we will stay where we are,” he said.
Monetary easing will more likely begin in the first quarter of 2025, and the cuts won’t be “huge” — just enough to bring the benchmark closer to the neutral rate of about 6% from the current 6.5%, the governor said.
As things stand, the odds are “over 56%” that inflation may breach the BSP’s 2%-4% target again this year and “that’s a reason to be hawkish,” Mr. Remolona said. “That has to change significantly before we decide to cut,” he said.
“Things have gotten worse in terms of inflation. So yes, if the trend continues, it won’t happen this year,” the governor said of the rate cut.
An escalation in the Israel-Iran conflict that could impact global oil supplies is a potential risk to the Philippine economy, Mr. Remolona said. The Southeast Asian nation imports nearly all of its fuel needs and is among the world’s top buyers of rice.
The BSP last week kept its target reverse repurchase rate unchanged at a near 17-year high of 6.5% for a fourth straight meeting.
The central bank hiked borrowing costs by a cumulative 450 bps from May 2022 to October 2023 to help bring down elevated inflation.
Headline inflation picked up to 3.7% in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year and marked the fourth straight month that the consumer price index was within the central bank’s 2-4% target.
For the first quarter, headline inflation averaged 3.3%, below the BSP’s baseline forecast of 3.8% and risk-adjusted forecast of 4%.
T-bond rates rose amid escalating tensions between Israel and Iran, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The BTr is looking to raise P195 billion from the domestic market this month or P75 billion from Treasury bills and P120 billion via T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.6% of gross domestic product this year. — A.M.C. Sy with Bloomberg