Inflation prompts higher Treasury Bond bid rates


Quicker inflation expectations for the month of October prompted investors to submit higher bid rates for the auction of P35 billion in reissued five-year Treasury Bonds (T-bonds).

Despite the security capping higher average rate than the previous auction and the secondary benchmark rates, the Bureau of the Treasury still decided to fully award the P35-billion offering.

With a remaining life of four years and five months, the security is set to mature on April 8, 2026.

The security fetched an average rate of 3.762 percent, rising by 18.6 basis points from 3.576 percent in the last auction.

The average rate is also higher than the secondary market benchmark rates from PHP Bloomberg Valuation (BVAL) Service.

Compared to the 3.7529 percent BVAL rate for 5-year tenor, the average rate is up by 0.9 basis points.

Meanwhile, the average rate is also above by 15.8 basis points than the 3.604 percent BVAL rate for the security itself.

National Treasurer Rosalia V. de Leon said they have already expected that investors will ask for higher rates, adding that the Treasury is in “good cash position” to reject bids.

“Rates higher as market priced in higher inflation print for October and expectations that [the US Federal Reserve] will start unwind of bond purchases,” de Leon said.

The Philippine Statistics Authority is set to release the October inflation report this Friday.

The Bangko Sentral ng Pilipinas (BSP) earlier said they are expecting that inflation could have hit between 4.5 percent and 5.3 percent in October. The government targets full-year inflation this year to settle within 2 percent to 4 percent.

De Leon also expressed confidence that the government securities will remain attractive to investors in the near term.

“Statements from [BSP] Governor Diokno and BSP provide assurance that inflation will be within target,” she said.

The auction was also oversubscribed as the security attracted total tenders of P46.65 billion.

For this month, the Treasury is set to borrow P200 billion from the local debt market in November, the same amount it programmed to borrow last month.

The Treasury aims to raise P140 billion through auctioning off T-bonds while another P60 billion is programmed to be borrowed through Treasury Bills (T-bills).

The national government’s outstanding debt as of end-September this year ballooned to another record high of P11.92 trillion, already breaching the government’s expected level of debt stock of P11.73 trillion by the end of this year.

This was also higher by 27.2 percent or P2.55 trillion than P9.37 trillion in the same period in 2020.

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