The Bureau of the Treasury sold P35 billion in reissued 5-year Treasury Bonds (T-bonds) as rates dropped after the US Federal Reserve said it would continue to scale back its bond purchases but avoid rushing into raising interest rates.
The tenor fetched an average rate of 2.746 percent, plunging by 54.9 basis points from 3.295 percent in the previous auction last May.
With a remaining life of 4 years and 7 months, the security is set to mature on April 8, 2026. It has a coupon rate of 3.375 percent.
Strong investor demand marked the auction, with total tenders for the debt paper reaching P76.17 billion, more than twice the P35 billion programmed.
Sought for comments following the auction, National Treasurer Rosalia V. de Leon attributed the pullback in the average rate to the markets’ pricing-in of US Federal Reserve Chairman Jerome Powell’s statement last Friday at the annual Jackson Hole policy forum.
“Powell’s remarks during Jackson Hole provided guidance that tapering will be decoupled from rate liftoff,” de Leon told reporters.
She added the Treasury decided to open the tap facility auction for an additional P5-billion offering.
Last week, the Treasury fully rejected all bids for P35 billion in reissued 20-year T-bonds as bid rates shot up following reports that the US Federal Reserve is preparing to taper off its bond purchases.
For this month, the Treasury is set to borrow a total of P250 billion from the local debt market, higher than the P200 billion program in August.
Broken down, P175 billion will be raised through auctioning off Treasury Bonds while the remaining P75 billion will be generated via the sale of T-bills.
This year, the national government programmed to borrow a total of P3.1 trillion, of which around 75 percent is expected to be raised through domestic sources.
The government borrows to meet its spending requirements as well as to finance its budget deficit.
The economic team sees the national government’s budget deficit this year to reach P1.86 trillion or 9.3 percent of gross domestic product (GDP), even higher than the P1.37 trillion or 7.6 percent of GDP in 2020. In 2019, the budget deficit stood at P660.2 billion or 3.4 percent of GDP.
Meanwhile, the national government’s outstanding debt this year is also expected to reach by the end of this year to balloon to P11.73 trillion, up by 19.8 percent from P9.795 trillion in 2020. This is also projected to further swell in 2022 to P13.42 trillion.
As of end-July this year, the national government’s outstanding debt has already piled up to a new record-high of P11.61 trillion, swelling by 26.7 percent from P9.16 trillion a year ago.
As a percentage of GDP, the debt-to-GDP ratio this year is projected to further rise to 59.1 percent and peak next year at 60.8 percent—slightly above the internationally accepted threshold—before gradually tapering off to 60.7 percent and 59.7 percent in 2023 and 2024.
Prior to the pandemic, the government notched a record-low debt-to-GDP ratio of 39.6 percent in 2019.
The Department of Finance sees the national government returning to its pre-pandemic debt and budget deficit levels as early as 2024 or by 2025 if the recommended fiscal measures are passed early by the next administration and if the economy quickly recovers.