Regulatory indices push up reissued Treasury bond rates

Rates rose at Tuesday’s auction of 35 billion pesos of 10-year reissued Treasury bonds (Treasury bonds) as regulators hinted they would become more active to stem the economic brakes.

Despite the rate hike, the Treasury Office fully allocated the proposed Treasuries, with the auction ending up being oversubscribed more than twice.

The total of tenders submitted for the tenor reached 73.59 billion pesos. With a residual term of nine years and nine months, the debt instrument will mature on July 22, 2031. Its nominal interest rate is set at 4%.

The share reached an average rate of 4.689%, up 44.3 basis points against 4.246% at the previous auction.

National Treasurer Rosalia V. De Leon told reporters she believed the rate hike was influenced by international and local developments, especially the higher inflation forecasts from Bangko Sentral ng Pilipinas (BSP) and the signal from the US Federal Reserve that it could soon slow down on its bond purchases.

“Rates have moved in tandem with the UST (US Treasury Bills) now at 1.5 with signals of lowering and higher BSP inflation expectations for 2021 and 2022,” De Leon told reporters in a message.

Last week, BSP said inflation is now expected to average 4.4%, an upward adjustment from its previous target of 4.1%.

Inflation accelerated from 4% in July to 4.9% in August, the highest recorded since January 2019. With the August impression, the country’s 8-month average inflation stood at at 4.4%.

Monetary authorities have also revised upward their inflation forecasts for next year from 3.1% to 3.3%. For 2023, inflation is expected to average 3.2% compared to the previous projection of 3.1%.

The auction committee decided to open the tap facility last Monday for an additional bid of 5 billion pesos for the same tenor to market makers under the eligible government securities brokers program, according to the national treasurer.

For this month, the Treasury is expected to borrow a total of 250 billion pesos on the local debt market, higher than the 200 billion pesos program in August.

This year, the national government planned to borrow a total of 3.1 trillion pesos, most of which is expected to be raised by domestic sources.

The government borrows to meet its spending needs as well as to finance its budget deficit.

By the end of July this year, the national government debt stock had already reached a new record high of 11.61 trillion pesos, up 26.7% from the 9.16 trillion pesos. one year ago.

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