T-bonds rate rise on faster Feb inflation

MANILA, Philippines  – News of a faster inflation rate in February pushed up the yield for Treasury bonds (T-bonds) on Tuesday, although the government was still able to raise its target amount of borrowings.

Auction results showed the Bureau of the Treasury (BTr) sold P30 billion in T-bonds, as planned.

The T-bonds, which are payable in seven years, were met with strong demand after attracting total bids amounting to P50.06 billion. But that did not stop borrowing costs from rising after the government reported a higher inflation rate in February compared to previous month.

”The 7-year Treasury bond average auction yield was higher after the slight pick up in the headline inflation data,” Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said.

READ: Inflation breaks 4-month downtrend with 3.4% spike in Feb

Inflation, as measured by the Consumer Price Index (CPI), quickened 3.4 percent year-on-year in February, from 2.8 percent in the preceding month, the Philippine Statistics Authority reported Tuesday.

The latest print surpassed the median estimate of 3.1 percent in Inquirer’s poll of six economists. But the February reading nevertheless marked the third straight month that inflation settled within the 2 to 4 percent target range of the Bangko Sentral ng Pilipinas.

Gov’t borrowing program

According to the BTr, the 7-year T-bonds fetched an average rate of 6.27 percent, higher than the 6.094 percent recorded in the last auction of the comparable bonds on Jan. 16, 2024.

READ: Gov’t unveils P585-B local borrowing plan for Q1 2024

The rate was also more expensive than 7.24 percent quoted for the same tenor in the secondary market as of March 4.

Documents from the budget department showed the Marcos administration is planning to borrow P1.85 trillion onshore in 2024. Of that amount, P51 billion will be raised via Treasury bills while P1.8 trillion will come from weekly auctions of T-bonds.

Those borrowings are needed to help plug a projected budget hole of P1.39 trillion this year, which is equivalent to 5.1 percent of gross domestic product.

Based on latest government forecasts, it is only in 2027 that the budget deficit, as a share of the economy, is expected to return to pre-pandemic level at 3.2 percent.

Finance Secretary Ralph Recto said the government will remain “prudent” in its debt management by continuing to adopt a 75:25 borrowing mix in favor of domestic sources.