10-year bond yield up but gov’t still borrows P35B

MANILA, Philippines—The Bureau of the Treasury (BTr) on Tuesday (May 24) raised P35 billion from reissued 10-year T-bonds but at a higher annual yield of 6.894 percent in the aftermath of higher interest rates here and abroad.

The BTr fully awarded the treasury bonds maturing in nine years and eight months’, especially as domestic creditors were willing to lend P72.9 billion or over twice the amount that the government wanted to borrow. To date, the BTr borrowed a total of P162.6 billion through these IOUs to be fully repaid in January 2032.

However, government securities eligible dealers’ (GSEDs) bid rates hit a high of 6.95 percent and a low of 6.625 percent. Back in January when it was first issued, this debt paper had a coupon of only 4.875 percent.

The same bond series was priced at 6.304 percent per annum in the secondary trading market, while other 10-year securities fetched an average rate of 6.407 percent in the secondaries.

“Higher rates were demanded by the market for duration premium following the Bangko Sentral ng Pilipinas’ rate hike and expectations of similar follow-up actions both from the US Federal Reserve and the BSP,” National Treasurer Rosalia de Leon said.

Last week, the BSP hiked key interest rates by 25 basis points (bps) to help rein in elevated inflation caused by expensive food and oil, which could pose a threat to the Philippines’ economic recovery from the pandemic-induced slump two years ago. The Fed was also expected to aggressively increase rates amid 40-year-high inflation in the US.

De Leon said that while the BTr was still finalizing its domestic borrowings program for June, Tuesday’s bond auction showed that there was appetite for long tenors as shown by the “good” bid-to-cover or tenders from GSEDs.

However, De Leon conceded that the government may have to shell out more interest payments to cover the lengthy maturity extension and compensate for the duration risk to be faced by local lenders.

TSB