Bond yields rise on weak demand

THE GOVERNMENT partially awarded the Treasury bonds (T-bonds) it offered on Tuesday, with demand weakening as investors turned cautious on longer tenors due to concerns over the fallout from the prolonged Middle East conflict.

The Bureau of the Treasury (BTr) borrowed just P9.451 billion via the reissued 10-year bonds it auctioned off, below the P20-billion offering, even as total bids reached P38.506 billion, or nearly twice the amount up for sale.

This brought the outstanding volume for the bond series to P179.5 billion, the Treasury said in a statement.

The reissued bonds, which have a remaining life of seven years and five months, were awarded at an average rate of 6.473%. Accepted yields ranged from 6.4% to 6.5%.

The average yield of the reissued papers rose by 61.4 basis points (bps) from the 5.859% fetched for the series’ last award on Feb. 10 but was still 15.2 bps below the 6.625% coupon for the issue.

This was also 20.03 bps above the 6.2727% fetched for the same bond series and 20.41 bps higher than the 6.2689% quoted for the seven-year paper — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The Treasury said it made a partial award of the bonds to cap the rise in yields.

“Weak demand there. I was actually surprised BTr still awarded it, although awarded bids were lower than market expectations prior to the auction,” a trader said in a text message.

The government partially awarded the bonds on tepid demand and higher bid yields “amid some market hesitancy on longer-end tenors to lock in with some market risk to manage compared to shorter-dated tenors amid geopolitical risks, especially in the Middle East,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He said the impact of the Iran war on oil prices along with the peso’s weakness could lead to higher import costs that could drive up Philippine inflation.

This could reduce the odds of further monetary easing by the Bangko Sentral ng Pilipinas (BSP) or even lead to rate hikes, he said, adding that the conflict could also delay the US Federal Reserve’s cutting cycle.

On Friday, BSP Governor Eli M. Remolona, Jr. said inflation could breach 4% if oil hits $100 a barrel, adding that if fuel prices rise sharply and persistently, they could be forced to tighten their policy stance again.

The Monetary Board last hiked borrowing costs in October 2023. It began its current easing cycle in August 2024 and has lowered rates by a total of 225 bps, bringing the key policy rate to its lowest in over three years at 4.25%.

Oil prices fell on Tuesday after hitting a more than three-year high in the previous session as US President Donald J. Trump predicted the war in the Middle East could end soon, easing concerns about prolonged disruptions to global oil supplies, Reuters reported.

Brent futures fell $6.28 or 6.3% to $92.68 a barrel at 0715 GMT, while US West Texas Intermediate crude was down $6.19 or 6.5% to $88.58 a barrel. Both contracts fell as much as 11% earlier before paring some losses.

Oil surged past $100 a barrel on Monday to the highest since mid-2022, as supply cuts by Saudi Arabia and other producers during the expanding US-Israeli war on Iran stoked fears of major disruptions to global supplies.

Prices later retreated after Russian President Vladimir Putin held a call with Mr. Trump and shared proposals aimed at a quick settlement to the war, according to a Kremlin aide, easing concerns about supply.

Mr. Trump said on Monday in a CBS News interview that he thought the war against Iran was “very complete” and Washington was “very far ahead” of his initial four- to five-week estimated time frame.

The BTr wants to raise P248 billion from the domestic market this month, or P108 billion in Treasury bills and P140 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.647 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters