P35-B treasury bonds rejected as bid rates climb

The Ayuntamiento de Manila which houses the Bureau of the Treasury (From the Facebook account of the bureau)

MANILA, Philippines—A successful first borrowing foray through short-dated T-bills to start 2022 was reversed on Tuesday (Jan. 4) as the Bureau of the Treasury rejected tenders for longer bonds due to high bid rates.

Bids hit a high of 5.2 percent and a low of 4.55 percent. Had the Treasury fully awarded the P35 billion in re-issued seven-year debt paper it offered, the average annual rate would have hit 4.814 percent, up from the 3.75-percent coupon when first issued in August 2021.

National Treasurer Rosalia de Leon said bid rates were “unreasonably high,” especially as the Bangko Sentral ng Pilipinas (BSP) expects a downward trend in headline inflation.

De Leon said markets may be calmer after the government releases its December 2021 inflation report on Wednesday (Jan. 5).

Miguel Chanco, senior Asia economist at the UK-based think tank Pantheon Macroeconomics, in a report on Tuesday projected a softer inflation rate of 3.8 percent year-on-year in December due to “favorable food base effects.”

Food prices, especially of pork, started to soar toward the end of 2020, no thanks to the African swine fever (ASF) outbreak.

But Chanco said the rate of increase in prices of basic commodities “will fluctuate around the 4-percent upper-bound of the BSP’s target until the second quarter, with upside risks dominating.”

In reports also on Tuesday, Goldman Sachs Economics Research projected an end-2021 headline inflation of 4.5 percent then 3.2 percent in 2022, while HSBC Global Research forecast 2021’s annual rate at 4.3 percent.

HSBC chief Asean economist Joseph Incalcaterra said elevated consumer prices, especially of food and oil products, were a “significant challenge for the economy,” even as inflation was expected to “moderate only gradually” to an average of 3.7 percent this year.

The BSP, for its part, had expected a return to the 2 to 4 percent target band of manageable year-on-year price hikes this year following last year’s above-target inflation episode.

Despite a string of rejections of treasury bonds since late 2021, De Leon said the government still had a “comfortable” cash balance to meet its budgetary requirements, owing to strong revenues plus disbursements of official development assistance (ODA) loans before 2021 ended.

The Bureau of Customs (BOC), for instance, exceeded its 2021 target collections of import duties and other taxes while also surpassing its pre-pandemic tax take. The Bureau of Internal Revenue (BIR), while yet to release its official 2021 collection figures, was very close to reaching its goal before 2021 ended, Deputy Revenue Commissioner Arnel Guballa said last Monday.

TSB