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The Treasury partially grants 5-year bonds in a context of high bid rates

By on January 11, 2022 0

Budget Secretary Benjamin Diokno has been appointed the new BSP governor. PHOTO BY EARVIN PERIAS

MANILA, Philippines — The Treasury Office granted just 22.1 billion pesos on its 35 billion peso bond offering on Tuesday (January 11) as yields rose despite easing inflation expectations.

The reissued five-year notes reached an average annual rate of 4.012%, up from the coupon of 3.375 percent when they were first issued in April last year.

Tender rates submitted for IOUs with a remaining four-year and two-month maturity peaked at 4.15%, which National Treasurer Rosalia de Leon said was “way above of fair value “.

The Treasury estimated that some rejected bids were relatively high, as De Leon said “inflation would tend to fall” and return to Bangko Sentral ng Pilipinas (BSP) ‘s 2 to 4% target range this year. .

In addition, De Leon said the debt market should be assured that the BSP should be “patiently supportive to allow the economy to recover” by keeping interest rates at their current low.

Eligible Government Securities Brokers (GSEDs) have offered 58.3 billion pesos for bonds maturing in 2026. To date, the Treasury has borrowed a total of 212.1 billion pesos through this series of bonds. ‘obligations.

De Leon said the Treasury was aware of the imminent US Federal Reserve policy tightening, even before the International Monetary Fund (IMF) warning last Monday that emerging markets like the Philippines “must prepare” for the pullback. from the Fed.

IMF economists said in a blog that amid high inflation in the United States and bottlenecks in the global supply chain, “faster Fed rate hikes in response could shake things up. financial markets and tightening global conditions globally ”, which“ could lead to capital outflows and currency depreciation in emerging markets ”.

“The impact of Fed tightening in a scenario like this could be more severe for vulnerable countries,” the IMF said.

“In recent months, emerging markets with high public and private debt, currency risks and lower current account balances have already seen their currencies move more strongly against the US dollar,” he said.

“The combination of slower growth and high vulnerabilities could create unfavorable feedback loops for these economies,” the IMF added.

While the Treasury borrows primarily from the domestic debt market to finance the broader budget deficit, “we are comforted by statements from BSP Governor Benjamin Diokno that he is patiently dovish in supporting the recovery,” said From Leon.

London-based think tank Capital Economics said in a Jan. 10 report that “Asia will be – contrary to consensus expectations for widespread hikes – the only emerging market region in which the median central bank will not tighten. This year”.

Capital Economics had forecast that the BSP would maintain the record 2% key rate throughout 2022 amid a still fragile economic recovery, with the protracted fight against COVID-19 still a risk.

“Thailand and the Philippines – the two Asian economies most affected by the pandemic – will not return to their pre-crisis level of production until the middle of this year, while the GDP [gross domestic product] will end the year well below its pre-crisis trend almost everywhere in the region, Capital Economics said.

Last week, Capital Economics cut its GDP growth forecast for 2022 for the Philippines to 8.5% from 10.5% previously, as the continued rise in COVID infections renewed tighter restrictions in areas representing half of the economy until mid-January.

The government had estimated production losses at PPP 3 billion per week, with Metro Manila and four surrounding provinces subject to a stricter alert level 3.


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