Long-term benchmark interest rate rises
At A Glance
- The Bureau of the Treasury conducted a successful full borrowing despite higher interest rates on seven-year debt.<br>The government raised the planned amount of P30 billion through reissued seven-year papers. Total bids received exceeded the auction block amount, reaching P46.058 billion.<br>The awarded bonds had varying interest rates ranging from 6.500 percent to 6.740 percent. The average rate obtained was 6.675 percent, a 30.5 basis points increase from the previous offering.<br>Compared to the secondary market, the average rate fetched was 15.5 basis points higher than the comparable bond series.<br>The rise in yields can be attributed to hawkish signals from the Bangko Sentral ng Pilipinas (BSP).<br>Geopolitical risk, specifically the Israel-Hamas war, led to increased risk aversion.<br>The surge in comparable U.S. Treasury yields to new decade-highs may have contributed to the higher yields in the auction.
The Bureau of the Treasury made a full-borrowing on Tuesday, Oct. 17, even though the interest rates on seven-year debt had risen amid expectations of tightening from the Bangko Sentral ng Pilipinas (BSP).
During an auction, the government successfully raised the planned P30 billion through the reissued seven-year papers. Total bids received amounted to P46.058 billion, exceeding the auction block amount.
The awarded bonds, with a remaining tenure of six years and nine months, had varying interest rates ranging from 6.500 percent to 6.740 percent.
The average rate obtained was 6.675 percent, 30.5 basis points (bps) higher than the 6.37 percent rate from the previous offering on Sept. 12.
In comparison to the secondary market, the average rate fetched was 15.5 bps higher than the 6.52 percent quoted for the comparable bond series, based the PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.
Michael L. Ricafort, Rizal Commercial Banking Corp. (RCBC) chief economist, said the increase in yields can be attributed to the hawkish signals from the BSP, which has not ruled out the possibility of a 0.25 bps interest rate hike in November 2023.
“Higher Treasury nond auction yield also due to geopolitical risk due to the Israel-Hamas war that increased risk aversion,” Ricafort said in a mobile phone message.
He added that this could be largely due to higher comparable U.S. Treasury yields recently to new decade-highs.
“The government’s strategy has been to have longer maturity of its debt/borrowings, but offset by the need also to time properly, in terms of not locking borrowings at elevated levels, given the cyclical nature of inflation and interest rates,” Ricafort said. (With Xander Dave Ceballos)