BTr makes partial T-bond award as yields jump on Gulf hostilities

THE GOVERNMENT made a partial award of the reissued Treasury bonds (T-bonds) it offered on Tuesday as players asked for higher yields amid renewed market volatility and inflation concerns due to rising oil prices driven by the Middle East war.

The Bureau of the Treasury (BTr) borrowed only P25.071 billion via the reissued seven-year bonds, below the P30-billion target, even as tenders reached P47.624 billion.

This brought the outstanding volume for this bond series to P501.7 billion, it said in a statement after the auction.

The BTr said it made a partial award to cap the increase in the average yield for the issue.

The reissued papers, which have a remaining life of four years and five days, were awarded at an average rate of 7.195%, with accepted yields from 7.1% to 7.228%.

This jumped by 37.9 basis points (bps) from the 6.816% fetched for the series’ last award on June 23 and was 82 bps above the 6.375% coupon rate for the issue.

This was also 3.3 bps higher than the 7.162% fetched for the same bond series and 13.5 bps above the 7.06% quoted for the four-year debt — the benchmark tenor closest to the remaining life of the papers on offer — at the secondary market before Tuesday’s auction, based on PHL Bloomberg Valuation Service Reference Rates data provided by the BTr

“The T-bonds were partially awarded following higher asking bids due to the Middle East conflict as of recent,” the first trader said in a phone interview.

The trader said the Treasury likely chose to make a partial award instead of a full rejection, which it made last week, as it offered a shorter tenor that would have a lower impact on banks’ books.

The central bank last month announced a relief measure allowing banks and quasi-banks to temporarily exclude unrealized or paper losses on peso government securities resulting from market volatility from the computation of their regulatory capital.

Unrealized losses are declines in the market value of securities that have not been sold but whose change in value is required to be reflected in banks’ regulatory capital. Rising bond yields decrease the market value of bonds.

“The partial awarding was due to the BTr not wanting to award at higher rates, not lack of demand,” the second trader said in a text message.

On Tuesday, global markets remained hostage to Middle East tensions, with oil prices seeing a sharp swing to near six-week highs before retreating, Reuters reported.

Yemen’s Iran-aligned Houthis declared a naval blockade on Saudi Arabia, raising threats to global energy supplies, while hopes of de-escalation persisted after Tehran received a 10-day ceasefire proposal from mediators.

The renewed hostilities have again disrupted the flow of energy supplies through the Strait of Hormuz, which handles around a fifth of the world’s oil supply.

The Philippines, which sources about 90% of its oil supply from the Middle East, has been one of the most affected by the global oil crisis.

Diesel and kerosene prices are set to climb by more than P10 per liter this week due to the conflict, with some retailers implementing the hike in tranches.

The BTr wants to raise P410 billion from the domestic market this month, or P250 billion via Treasury bills and P160 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion or 5.4% of gross domestic product this year. — Aaron Michael C. Sy