July 18, 2022

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Gov’t partially awards Treasury bill offer

THE GOVERNMENT partially awarded its offer of Treasury bills (T-bills) at higher rates following the Bangko Sentral ng Pilipinas’ (BSP) surprise 75-basis-point (bp) hike last week.

The Bureau of the Treasury (BTr) raised P12.9 billion from its auction of T-bills on Monday, lower than the P15-billion program, even with bids reaching P33.52 billion or more than twice the planned amount.

Broken down, the Treasury made a full P5-billion award of 91-day securities as the tenor attracted P16.62 billion in bids. The average rate of the tenor went up by 44.7 bps to 2.323% from the 1.876% fetched at the previous auction. Accepted rates ranged from 1.850% to 2.750%.

The government also raised P5 billion as planned from the 364-day debt papers, with bids reaching P8.02 billion. The average rate of the one-year tenor climbed by 27.7 bps to 3.258% from the 2.981% seen at last week’s auction, with the yields on the awarded bids within the 3% to 3.423​​% band.

Meanwhile, the BTr borrowed just P2.9 billion from the 182-day debt papers out of the P5-billion program, even with total tenders reaching P8.89 billion. The tenor’s average rate went up by 17.6 bps to 3.083% from the 2.907% fetched for a full award last week, with the government accepting offers ranging from 2.99% to 3.148%.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 1.9413%, 2.6167%, and 2.8709%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

“As expected, markets asked for higher rates following the 75 bps off-cycle hike by BSP,” National Treasurer Rosalia V. de Leon told reporters in a Viber message.

“Another 50 bps is also now being put on the table as the Fed (US Federal Reserve) turns more aggressive, with a possible full percentage point [rate hike] to be delivered during the next FOMC (Federal Open Market Committee) [meeting],” Ms. De Leon added.

Asked why the Treasury made a partial award of the six-month paper, the official said a full award would have caused the tenor’s average rate to rise to 3.32%, which would already be higher than that for the one-year T-bill.

Traders likewise said the BSP’s surprise move last week caused T-bill rates to rise on Monday.

The first trader said the auction result was “quite expected given the adjustment in policy rates.”

“We may continue to see short-term rates adjust higher,” the first trader added.

“T-bill result [was] as expected with BSP raising policy by 75 bps last Thursday. This uptick of about 50 bps in the 91-day and 27 bps in the one-year paper is in line with what we expected. Although the range of high and low is wide, we should see this narrow in the next couple of weeks,” the second trader said.

The BSP unexpectedly raised its benchmark interest rates by an all-time high 75 bps on Thursday and left the door open for further tightening amid growing risks to inflation, which already reached a near four-year high in June.

BSP Governor Felipe M. Medalla said the “significant” hike was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns.

On Friday, Mr. Medalla said he would not rule out another interest rate increase in the Monetary Board’s August review, although the need for a 50-bp hike at that meeting is “much less now” following their off-cycle move on Thursday.

Headline inflation was at a near four-year high of 6.1% in June, exceeding the central bank’s 2-4% target for a third straight month. This brought the first-half average to 4.4%, still below the BSP’s full-year forecast of 5%.

Meanwhile, US consumer prices jumped by 9.1% annually in June, the fastest in more than 40 years, data released last week showed. This fueled bets of an even bigger hike by the Fed at its July 27-28 review following the 75-bp increase made in June.

On Tuesday, the BTr will auction off P35 billion in 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 11 months.

The Treasury is looking to raise P200 billion from the domestic market in July, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — Diego Gabriel C. Robles