Bond yields mixed as war keeps market on edge

THE GOVERNMENT borrowed its target amount via its dual-tranche Treasury bond (T-bond) offer on Tuesday as investors sought to place their excess cash in safer assets with higher returns as the Middle East war rages on.

The Bureau of the Treasury (BTr) raised P40 billion as planned via its dual-tenor T-bond offer as total bids for both tenors reached P65.982 billion, higher than the offered volume and the P27.118 billion in tenders seen on March 24.

Broken down, the Treasury raised P21.277 billion from the reissued seven-year bonds, within its P20 billion to P30 billion target as bids totaled P40.503 billion.

This brought the outstanding volume for this bond series to P271 billion, the BTr said in a statement.

The papers, which have a remaining life of three years and one month, fetched an average rate of 6.298%, with bids ranging from 6.15% to 6.34%.

This was 34.4 basis points (bps) higher than the 5.954% fetched for the series’ last award on Nov. 26, 2024 but was 20.2 bps below the 6.5% coupon for the issue.

The average yield was also 3.9 bps lower than the 6.337% fetched for the same bond series but was 5.7 bps higher than the 6.241% quoted for the three-year bond, the benchmark tenor closest to the remaining life of the issue, at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the BTr.

For the reissued 25-year T-bonds, the government raised P18.623 billion via the tenor, below the P20 billion to P30 billion goal, as tenders reached P25.479 billion.

This brought the total oustanding volume for the bond series to P121.7 billion, the Treasury said.

The notes, which have a remaining life of eight years and seven months, were awarded at an average rate of 6.747%, with bid yields at 6.65% to 6.8%.

The average rate of the issue fell by 44.2 bps from the 7.189% fetched for the series’ last award on Dec. 9, 2022 and was 250.3 bps below its 9.25% coupon.

This was likewise 5.7 bps lower than the 6.804% fetched for the same bond series but was 0.8 bp above the 6.739% quoted for the eight-year bond at the secondary market before Tuesday’s auction, PHP BVAL Reference Rates data showed.

Demand for the T-bonds was driven by a maturing security on Wednesday, a trader said by phone.

“Players are still looking for somewhere to place their funds. The market is on wait-and-see mode on Trump’s deadline for Iran,” the trader said.

The BTr partially awarded the 25-year note as demand was weak, with investors hesitant about locking in their funds in longer tenors and asking for higher yields as the war in the Middle East poses risks to the economy, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He added that the reissued seven-year bonds fetched higher rates following the release of inflation data for March.

The consumer price index (CPI) quickened to 4.1% in March from 2.4% in February and 1.8% in the same month last year, the government reported on Tuesday.

This was the quickest pace in nearly two years or since the 4.4% in July 2024, which was also the last time that the monthly print breached the BSP’s 2%-4% target.

March inflation was also above the 3.8% median estimate in a BusinessWorld poll of 18 analysts and the central bank’s own 3.1%-3.9% forecast for the month.

This brought the three-month average to 2.8%. The BSP sees inflation averaging 5.1% this year as it expects the conflict’s impact on oil prices to affect food, utilities, and transportation costs.

Iran and Israel traded attacks as Tehran refused to reopen the Strait of Hormuz and accept a ceasefire deal ahead of a Tuesday night deadline from US President Donald J. Trump to agree to his demands or get “taken out,” Reuters reported.

Still, markets held on to some hopes for de-escalation as they mulled the potential impact of the conflict on inflation, economic growth and central bank interest rates.

Government bonds worldwide came under pressure soon after the war started on February 28, with yields jumping higher as inflation expectations surged on spiking energy prices.

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

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.6 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters