Hawkish bets push up T-bond rates

MANILA  -The cost of long-term borrowing for the government is also rising as the average rate on 10-year Treasury bonds jumped by 31.9 basis points (bps) to 6.562 percent even as the auction committee opted for a partial award.

This was as financial markets factored in upward pressures from recent interest rate hikes by central banks in Europe as well as expected increases in the United States later this year.

The auction committee led by the Bureau of the Treasury on Tuesday raised only P23.586 billion out of the P30 billion offered.

Originally issued in September 2022 and with a remaining life of nine years and two months, the T-bonds fetched an average rate of 6.243 percent in its most recent reissue, which was just last week.

Had there been a full award, the average would have surged by 33.1 bps to 6.574 percent.Still, the committee noted that the resulting average rate was lower than the coupon rate of 6.75 percent set on its original issuance.

“The auction was 1.8 times oversubscribed with total tenders reaching P52.8 billion,” the committee said in a statement.With the latest award, the total outstanding volume for the series has now reached P263.6 billion.

Further, the new average was higher than prevailing rates for corresponding deals at the secondary market, where the Bloomberg Valuation Service (BVAL) pegged the rate on corresponding corporate bonds at 6.329 percent or 23.3 bps lower.

Meanwhile, the rate on corresponding government securities was pegged at 6.49 percent or 7.2 bps lower.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said that Philippine interest rate benchmarks—particularly the 10-year BVAL yields—have been moving in positive correlation to changes in 10-year US Treasury yield.

Ricafort said the US debt market was getting more attractive to lenders as the market had priced in an 80-percent probability of the US Federal Reserve raising its targeted funds rate later this month, as well as a 50-percent chance of a second rate hike by November.On Monday, the cost of short-term government borrowings via Treasury bills also rose for the fifth straight week across all tenors due to the hawkish Fed signal. INQ