Gov’t partially awards T-bills as rates rise

THE GOVERNMENT made a partial award of the P20 billion it planned to raise through the auction of Treasury bills (T-bills) yesterday as yields rose across all tenors.

The Bureau of the Treasury’s offer yesterday was met with P22.96 billion in demand, slightly above the program, but it only borrowed P14.17 billion via the three- month, six- month, and one-year debt papers as banks asked for higher returns due to faster inflation and expectations of rate hikes from Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The government borrowed P7.394 billion under the 91-day Tbills, below the P9 billion the Treasury intended to borrow, even as it received bids worth P13.024 billion. The average interest rate rose to 2.67% from the 2.321% fetched during the previous auction.

The Treasury also made a partial award of the P6 billion programmed under the 182-day tenor, accepting bids worth P5.189 billion despite banks and financial firms wanting to lend as much as P6.069 billion. The average yield went up to 2.854% from the 2.577% fetched last auction.

The 364-day T-bills followed this trend, with the government awarding only P1.59 billion out of the P5 billion it wanted to borrow. Banks posted just P3.87 billion in tenders. This drove the average yield upward to 3.04% from the 2.925% fetched in the previous auction.

At the secondary market, before the auction, the threemonth papers were quoted at 2.75%, while the six-month tenor fetched 3.4129%. The yield on the one-year T-bill was at 3.6736%.

At the close of trading, the three-month, six-month and oneyear papers fetched higher yields at 2.7461% 3.4218% and 3.6914%, respectively.

“We do see that there’s really a need to increase the rates given the higher inflation and we [also considered] the expectations of the market for BSP and Fed rate hikes,” National Treasurer Rosalia V. De Leon said after the auction.

The Philippine Statistics Authority reported last week that inflation accelerated to 4% in January, the fastest in more than three years.

As inflation is expected to overshoot the central bank’s 2-4% inflation target, economists are now looking at a BSP tightening as early as March.

Meanwhile, Fed officials affirmed last week the expectations of rate hikes this year.

On Thursday, Kansas City Fed Prsident Esther L. George said it is “reasonable” to hike benchmark rates given the economic boost provided by the American tax reform law.

New York Fed President William C. Dudley also said it is possible the US central bank will hike more than three times in 2018 “if the economy looks stronger as we go through the year.”

Meanwhile, Ms. De Leon noted that the rejection is not a sign that the government is tightening its financing following its “healthy cash buffer” brought by the 20th issuance of retail Treasury bonds late last year, as well as the good collection of Bureau of Internal Revenue (BIR).

On Friday, BIR Commissioner Cesar R. Dulay said the agency’s collections rose 15% year on year. The agency collected P147.39 billion in January 2017. A 15% increase would bring the month’s tally to around P169.5 billion.

The Treasury plans to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds in the January to March period. This is higher than the P200 billion it offered in the last quarter of 2017.

The government borrows from local and foreign sources to fund its budget deficit, which for this year is capped at 3% of the country’s gross domestic product.

PANDA BONDS

Meanwhile, Ms. De Leon said they are looking at a three- to five-tenor for the yuan-denominated or panda bonds seen to be launched in March.

“We’re looking at the threeand five-year. We cannot go longer so [we might go] within the three- and five-year [tenor],” Ms. De Leon said.

In a Viber message, Finance Secretary Carlos G. Dominguez III said was already approved by People’s Bank of China and National Association of Financial Market Institutional Investors.

In November, the government and the Bank of China signed the underwriting agreement for the country’s maiden issuance of $200 million worth of yuan-denominated securities. •