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Gov’t fully awards 10-year bonds at higher rate

THE GOVERNMENT made a full award of the reissued 10-year Treasury bonds (T-bonds) it offered on Tuesday even as investors asked for higher returns amid a projected uptick in inflation and an uncertain economic outlook.

The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the 10-year bonds auctioned off on Tuesday as the offer was more than twice oversubscribed, with tenders totaling P65.997 billion.

The debt papers, which have a remaining life of four years and nine months and a coupon rate of 3.625%, fetched an average rate of 2.9% on Tuesday, rising by 11.9 basis points from the 2.782% quoted in the Oct. 20 auction.

At the secondary market on Tuesday, the five-year T-bonds — the tenor closest to the remaining life of the 10-year bonds on offer — were quoted at 2.745% at the secondary market.

Sought for comment, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said investors asked for higher yields due to expectations of faster inflation and with the economic landscape still cloudy amid the coronavirus pandemic.

“Bond yields moved north with investors asking for higher yields against a backdrop of a potential uptick in domestic inflation and with global yields also inching higher on positive developments on the vaccine front,” Mr. Mapa said in an e-mail.

He added the higher yield reflected high liquidity among investors and worries about the country’s long-term economic growth prospects.

“Despite the dampened demand for this segment of the yield curve, the auction still managed to draw twice the award size, a testament as to how overly liquid the market is at the moment. Liquidity continues to build up with BSP (Bangko Sentral ng Pilipinas) support, with investors not confident enough to bet on anything else given the souring growth outlook,” Mr. Mapa said.

“Overall, liquidity is still there to support these auctions. But expect investors to be more defensive,” a trader said in a Viber message.

Inflation rose to its fastest pace in three months in October, the government reported earlier this month.

Preliminary data from the Philippine Statistics Authority (PSA) showed headline inflation at 2.5% in October, picking up from the 2.3% pace the month before.

The October inflation result marked the fastest pace in three months or since the 2.7% reading in July 2020.

Year to date, inflation settled at 2.5%, still within the BSP’s 2-4% target this year, but above its 2.3% forecast for the entire year.

Meanwhile, the Philippine economy continued to shrink for a third straight quarter, although at a slower pace compared with the previous three-month period, as lockdown restrictions were further loosened amid the coronavirus pandemic.

The economy remained in recession as gross domestic product (GDP) contracted by 11.5% in the third quarter after the 16.9% plunge in the second quarter, the PSA reported last week. GDP grew by 6.3% in the third quarter of 2019.

Year to date, Philippine GDP shrank by 10%. The government expects the economy to contract between 4.5%-6.6% this year.

The government plans to borrow P140 billion from the domestic market this month: P80 billion in weekly Treasury bill auctions and P60 billion in fortnightly T-bond auctions.

It is also offering another tranche of Premyo bonds to raise at least P3 billion. The offer period started on Nov. 11 and is set to run until Dec. 18.

Premyo bonds are part of the government’s bid to attract more small investors to invest in government securities. Last year, the BTr raised P4.961 billion from the sale of one-year peso-denominated Premyo bonds, up from its initial offer of P3 billion.

The government wants to raise around P3 trillion this year from local and foreign lenders to help fund its budget deficit, which is expected to hit 9.6% of the country’s gross domestic product. — KKTJ

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