P9-b RP bond sale fails on inflation worries

PNS — The government failed to sell all of its 20-year bonds on offer at an auction Tuesday as investors demanded higher yields on concern rising fuel prices and transport fares will fan inflation.

The Bureau of the Treasury raised P4.12 billion compared with the planned P9 billion. The debt was sold at a yield of 8.024 percent. Borrowing costs would have climbed to 8.155 percent had the government accepted all the P8.02 billion in bids.

“There’s some expectations” of inflation picking up, pushing investors into “safe mode,” Treasurer Roberto Tan told reporters after the auction.

The government reissued 20-year bonds, shorter than the original maturity of 25 years.

“The investors are in the wait-and-see mode. They are just on the sidelines and wanted to find out whether we [government] would yield for higher rates.”

The auction committee changed the rates three times before settling for 8.024 percent, 49.7 basis points lower than the 8.521-percent yield when the 25-year paper was auctioned in July last year.

President Benigno Aquino has given approval for rail companies to raise fares from March 1, while local oil firms increased prices last week. The Philippines is seeking to narrow this year’s budget deficit to P290 billion from a P325-billion goal in 2010, with rising yields making it more expensive to borrow.

The yield on the three-year 6.25 percent local currency bond jumped 50 basis points after the debt sale to 5 percent, the highest level since Oct. 1, according to Tradition Financial Services. It has climbed a full percentage point since the end of last year.

Inflation held at 3 percent in December, taking the 2010 average to 3.8 percent, compared with the central bank’s target of 3.5 percent to 5.5 percent. This year’s inflation forecast was raised to 3.6 percent from 2.4 percent in December.

Commuter railways have “provisional” approval to raise fares in March, presidential spokesman Edwin Lacierda said Monday. The price of oil climbed to a 27-month high of $92.58 a barrel on Jan. 3 and was 0.5 percent higher Tuesday at $91.51.