Government makes full award of Treasury bills

THE GOVERNMENT made a full award of the Treasury bills (Tbills) it auctioned off yesterday after the papers saw strong appetite, with investors preferring shorter-termed debt ahead of planned policy tweaks by the US Federal Reserve.

The state successfully borrowed P15 billion as planned after the papers on offer yesterday were met with P31.9 billion in total demand, more than twice the program. All tenors were oversubscribed.

The government fully awarded the 91-day T-bills after total bids reached P15.801 billion, more than double the offer size of P6 billion. The papers fetched an average rate of 2.176%, down by 1.3 basis points ( bp) from the 2.189% yield seen at the July 17 auction.

Similarly, it accepted all bids for the 182-day papers at an average rate of 2.529%, up 3.3 bps from the 2.496% seen in the previous exercise. Banks wanted to buy as much as P7.94 billion of the papers, higher than the P5 billion offer.

Lastly, the Treasury bureau also raised P4 billion as planned from the 364-day debt notes as the offer attracted P8.178 billion in tenders, more than double the program. It fetched a yield of 2.97%, down 2.3 bps from the rate seen for the papers at the T-bills auction two weeks ago.

At noon or before yesterday’s auction, yields on the 91-, 182and 364- day T- bills settled at 2.8425%, 2.9893% and 3.0446%, respectively.

The three- month and oneyear papers rallied to fetch lower rates as the market closed, ending with 2.1917% and 2.8298%, respectively. The six-month T-bill’s yield was steady at 2.9893%.

The National Treasurer said the government decided to fully award its offer due to strong market demand, with preference for shorter-tenored debt papers observed as investors took their cue from the Fed’s comments following last week’s Federal Open Market Committee (FOMC) meeting.

“We see again the appetite of the market…on the short end of the curve…coming out of the FOMC,” National Treasurer Rosalia V. de Leon told reporters after yesterday’s auction.

The Federal Reserve kept interest rates unchanged last week and said it expected to start winding down its massive holdings of bonds “relatively soon” in a sign of confidence in the US economy.

The Fed kept its benchmark lending rate in a target range of 1% to 1.25%, as expected, and said it was on track to continue the slow path of monetary tightening that has lifted rates by a percentage point since 2015.

In a statement following a two-day policy meeting, the US central bank’s rate-setting committee indicated the economy was growing moderately and job gains had been solid.

It also noted that both overall inflation and a measure of underlying price gains had declined — trends which have worried some policy makers — but that it expected the economy to continue strengthening.

“The committee expects to begin implementing its balance sheet normalization program relatively soon,” the Fed said, adding that it would follow a plan outlined in June to trim its holdings of US Treasury bonds and mortgage-backed securities.

After pushing rates nearly to zero to fight the 2007- 2009 financial crisis and recession, the Fed pumped over $3 trillion into the economy in a bond- buying spree to further reduce rates. Its balance sheet has grown to $4.5 trillion.

The statement cemented expectations the Fed will announce at its next policy meeting in September the start of its balance sheet reduction plan, marking the end of a controversial tool that drew criticism from Republican lawmakers in Congress.

LOW INFLATION

“At the same time, the [Philippine] central bank said there’s no pressure to raise rates. Also, the survey of economists about the inflation path [is] still below the 3%,” Ms. de Leon added.

A BusinessWorld poll of 10 analysts last week yielded a median inflation estimate of 2.85% for July on the back of higher prices of food, electricity and fuel, an uptick from June’s 2.8% reading and from July 2016’s 1.9%.

The Philippine Statistics Authority is set to release official July inflation data on Friday.

Sought for comment, a bond trader said bids by banks at yesterday’s auction fell within market expectations.

Asked what factors investors considered prior to placing their bids at yesterday’s exercise, the trader said, “Well, mostly routine investor requirement only, there were no other factors.”

The government plans to borrow as much as P195 billion from domestic sources this quarter through offerings of P105 billion worth of T-bills and P90 billion in Treasury bonds, more than the P180 billion programmed in the second quarter.

Meanwhile, asked if the Treasury bureau already bagged the Bangko Sentral ng Pilipinas’ (BSP) approval for its plan to sell yuan-denominated debt papers this semester, Ms. de Leon said, “I think we’re doing well. We’re on track with our approvals. We’re