July 25, 2022

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T-bills partially awarded at higher rates

THE GOVERNMENT partially awarded its offer of Treasury bills (T-bills) at mostly higher rates amid inflation concerns that have caused global central banks to tighten.

The Bureau of the Treasury (BTr) raised P13.75 billion from its auction of T-bills on Monday, lower than the P15-billion program, even with bids reaching P38.84 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 P20.574 billion in bids. The average rate of the tenor inched down by 5 basis points (bps) to 2.273% from the 2.323% fetched at the previous auction. Accepted rates ranged from 2.22% to 2.295%.

The government also made a full P5-billion award of 182-day securities as tenders reached P12.12 billion. The average rate of the tenor went up by 5.9 bps to 3.142% from the 3.083% fetched at the previous auction. Accepted rates ranged from 3% to 3.2%.

Meanwhile, the BTr borrowed just P3.75 billion from the 364-day debt papers out of the P5-billion program, even with demand for the tenor reaching P6.15 billion. The tenor’s average rate rose by 9.8 bps to 3.356% from 3.258% fetched at the previous auction, with the government accepting offers ranging from 3.25% to 3.5%.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 2.1364%, 2.7365%, and 3.137%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon told reporters in a Viber message that the BTr partially awarded the one-year T-bill as “awarding beyond 3.5% is [an] excessive cushion against inflation as we saw recent drops in oil prices.”

“Everyone is waiting for President Ferdinand R. Marcos, Jr.’s State of the Nation message, especially the administration’s priorities and initiatives to curb inflation’s rise,” Ms. De Leon added.

A trader said the auction’s results were in line with market expectations.

“The short-end of the curve continues to be pressured by the global monetary tightening cycle, [which is the] main reason why yields of T-bills have risen significantly compared to those in the belly to the long-end sector of the bond curve,” the trader said.

“The current trend of the GS (government securities) curve is still bear flattening, where yields of those short-end bonds rise faster than those at the far-end and recent results of the T-bill auctions have affirmed that trend,” the trader added.

Central banks around the world have been tightening their monetary policies as supply chain and geopolitical issues have caused inflation to rise.

At home, 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 Bangko Sentral ng Pilipinas’ (BSP) full-year forecast of 5%.

With inflation yet to peak and second-round effects already materializing, the BSP on July 14 raised its benchmark interest rates by an all-time high 75 bps in an off-cycle review and left the door open for further tightening.

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.

The central bank’s surprise move came ahead of its regular policy meeting scheduled on Aug. 18, and follows two 25-bp rate hikes each in May and June. The Monetary Board has raised benchmark interest rates by a total of 125 bps so far this year.

Mr. Medalla has also 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.

Monday’s T-bill auction was the last one for the month. The government raised just P54.81 billion via the short-term debt papers against its P60-billion program for July after a number of partial awards due to rising rates.

On Tuesday, the BTr will auction off P35 billion in reissued benchmark 25-year Treasury bonds (T-bonds) with a remaining life of 13 years and four months for its last offer of long-term papers this month.

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