August 30, 2022

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T-bill bids rejected as market asks for higher rates

THE BUREAU of the Treasury (BTr) rejected all bids for its offer of Treasury bills (T-bills) as investors asked for higher yields as the US Federal Reserve chief said US rates could remain elevated for longer.

The BTr did not award any T-bills on Tuesday even as tenders reached P17.289 billion, higher than the BTr’s plan to raise P15 billion through the short-term papers.

Broken down, the Treasury turned down all bids for the 90-day T-bill even as total tenders reached P6.103 billion, above the P5-billion plan. Had the Treasury made a full award, the three-month debt papers would have fetched an average rate of 2.685%, surging by 61.5 basis points (bps) from the 2.07% seen last week.

The BTr also refused to award any 182-day securities even as total bids came in at P8.252 billion, higher than the programmed P5 billion. The average rate of the six-month T-bill would have gone up by 22.5 bps to 3.561% for a full award from 3.336% a week ago.

Lastly, the government turned down all tenders for the 364-day debt paper as demand stood at only P2.934 billion, below the P5-billion offer. Had the Treasury accepted these bids, the average yield on the one-year instrument would have jumped by 61.7 bps to 4.399% from the 3.782% fetched previously.

At the secondary market prior to the auction on Tuesday, the 90- 182- and 364-day T-bills were quoted at 2.145%, 3.252% and 3.809%, respectively, based on the PHP Bloomberg Valuation Reference Rates data provided by the BTr.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the government made a full rejection as the market asked for higher returns after Fed Chair Jerome H. Powell said last week that the US central bank will continue hiking rates to bring inflation under control, even if the economy slows.

“The Auction Committee decided to reject all bids for the Treasury bills as rates increased and trended above secondary market levels across all tenors,” the Treasury said in a statement.

“Somehow, the BTr was expected to reject, especially as bids were higher following the Fed chief’s hawkish statement,” a bond trader said.

Mr. Powell said at the Fed’s annual economic symposium in Jackson Hole, Wyoming over the weekend that the US may see slower economic growth and an increase in unemployment as the central bank continues to raise rates to fight rising inflation.

He said the Fed will raise rates as high as needed and would keep them there “for some time” to bring down inflation, fueling bets of another 75-bp hike at the US central bank’s meeting next month.

The Fed has raised rates by 225 bps so far since March, including two 75-bp hikes in June and July.

Tuesday’s T-bill auction was the last one for the month. The government was only able to raise P57.021 billion via the short-term papers versus its P75-billion program for August due to several partial awards and Tuesday’s full rejection amid rising rates.

As for Treasury bonds (T-bonds), the BTr was able to raise P105 billion as planned from three auctions this month on robust demand for the higher-yielding long-term papers. The government was originally scheduled to hold four T-bond offerings in August, but it canceled its last auction to make way for its retail bond issuance.   

In total, the BTr was able to borrow P162.021 billion out of its P180-billion program for August.

For September, the Treasury plans to borrow P200 billion from the domestic market, or P60 billion via T-bills and P140 billion from 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. — Keisha B. Ta-asan