Gov’t settles for partial award of T-bills to limit increase in yields

THE GOVERNMENT settled for a partial award of the P15 billion worth of Treasury bills (T-bills) it offered yesterday as yields climbed, reflecting market anticipation for additional rate hikes from the local central bank.

Bids received during Monday’s auction totalled P20.254 billion, slipping from last week’s P22.36 billion but still higher than what the Bureau of the Treasury planned to raise. This allowed the government to accept P11.9 billion worth of T-bills, albeit short of the P15-billion program.

All three tenors saw offers reach above board, although demand was stronger for the yearlong papers.

The Treasury awarded P3.585 billion worth of 91- day T- bills versus the P5- billion program. This is an improvement from the rejected tenders last week, even as it refused nearly half the P6.718 billion of this week’s total offers.

This, as yields surged to average 3.484%, up 16.1 basis points ( bp) from the 3.323% average rate previously. The state even capped bids at 3.55% as some players wanted returns as high as 3.75%.

The government also raised P2.464 billion in 182-day papers, barely filling the P4-billion offer and making up just half of the P5.685 billion in total bids yesterday. Rates fetched under this tenor rose by 10.7 bps to average 3.873%, coming from the 3.766% seen a week ago.

On the other hand, the 364day securities shored up the biggest amount of tenders at P7.851 billion, surpassing the P6 billion which the Treasury placed on the auction block. However, the government only awarded P5.851 billion worth of papers to keep the pickup in yields at 7.2 bps. The one-year instruments fetched a 4.429% average rate, inching up from 4.357% a week ago.

Three-month and six-month papers were priced at 3.9986% and 4.1804%, respectively, at the secondary market before the Treasury’s T-bills auction, while one-year notes fetched a 4.2643% yield.

Rates on the 91-day and 182day T-bills were steady as trading at the secondary market closed, while the 364-day papers inched up to yield 4.268%.

National Treasurer Rosalia V. De Leon said yesterday’s auction reflected market expectations of a sustained rise in interest rates, as they expect the Bangko Sentral ng Pilipinas (BSP) to maintain its tightening bias.

“[E]ven after the 50-bp hike of the BSP, there is also a lot of analysts saying that it’s not enough... They expect that there will be more price hikes, so they are already cushioning themselves against [that],” Ms. De Leon told reporters, referring to the backto-back rate hikes introduced in May and June.

She added that traders are likely taking a “wait- and- see” stance as they expect inflation to keep rising over the next few months, referring to the BSP’s latest signal that inflation peak within the third quarter.

Still, Ms. De Leon said the country’s cash position remains “very much good” with the recent retail Treasury bond issuance which raised P121.765 billion, as well as above-target revenue collections by government agencies.

Sought for comment, one trader also pointed out that players are holding on to their loanable funds as they expect yields to keep rising each week.

“With weekly supply, [ yields are] inching up,” the trader said in a phone interview, referring to the weekly offering of T-bills. “The demand is there but the tendered bids... with constant supply, you can postpone your bids to next week with expectations for yields to go up, so it’s better to wait.”

The trader added that most players see that the BSP remains behind the curve despite the cumulative 50-bp hike in terms of catching up with inflation, which builds the case for another rate hike in succeeding policy meetings.

The Treasury is still finalizing the borrowing program for the third quarter. Ms. De Leon said the amount and frequency of bond offerings are still being discussed, as they price in market appetite and funding needs for the rest of 2018.

She added that work on the country’s issuance of yen-denominated papers or samurai bonds is also underway, with the Treasury working on documentary requirements and conducting due diligence ahead of the planned offering.

Ms. De Leon said they have talked to 16 Japanese investors — mostly asset managers — during their visit to Tokyo last week. Finance Secretary Carlos G. Dominguez III said they are looking to issue the bonds between September- October.

The national government borrows from local and foreign sources to fund the increased spending and boost economic activity. It plans to borrow a total of P888.23 billion this year to plug its budget deficit that is capped at three percent of the country’s gross domestic product.