Treasury makes partial award of T-bills amid lukewarm demand

THE GOVERNMENT partially awarded the Treasury bills (T-bill) it offered on Monday, rejecting all bids for the shortest tenor amid lukewarm demand, as the market continues to price in the local inflation print for September.

The Bureau of the Treasury (BTr) opted to make a partial award of the short-dated securities, raising just P7.001 billion out of the P15 billion it intended to borrow yesterday.

Market players offered P17.86 billion in bids, lower than the P20.1-billion worth of bids logged a week ago but still above the planned borrowing.

Broken down, the Treasury rejected all bids for the 91-day tenor even as tenders from banks amounted to P5.16 billion, slightly above the P5 billion the government offered yesterday.

Had the government proceeded with a full award, the threemonth debt papers would have fetched an average rate of 5.067%, 66.3 basis points (bp) higher than the 4.404% logged the previous auction.

Meanwhile, the government awarded P3.652 billion in the 182-day securities, below the P5billion program. This, even as the offer was oversubscribed, with tenders reaching P6.752 billion. Still, the average yield climbed 21 bps to 5.894% from the 5.684% quoted at the auction last week.

The 364-day papers were also partially awarded as the Treasury borrowed just P3.349 billion out of the P6-billion program. Bids by banks stood at P5.949 billion. The average rate for the papers went up 37.3 bps to 6.256% from the 5.883% posted last week.

At the secondary market before the auction, the three-month papers were quoted at 5.0857% while the six-month tenor fetched 5.575%. The yield on the one-year T-bill, on the other hand, was at 6.3696%.

At the market’s close, yields on the 91-day and 182-day T-bills climbed to 5.0964% and 5.5805%, respectively. Meanwhile, the 364day papers rallied to fetch a lower rate of 6.0285%.

Following the auction, Deputy Treasurer Erwin D. Sta. Ana said the government decided to partially award the T-bills yesterday as bids from investors came in higher than expected.

“Based on our feedback from the surveys that we did and the central bank did to our [eligible dealers], they are still factoring in inflation,” Mr. Sta. Ana told reporters on Monday, saying expectations of future policy tightening by the US Federal Reserve were also considered.

Inflation picked up to 6.7% in September from the 6.4% print in August and 3% in the same month a year ago, as typhoon Ompong (international name: Mangkhut) worsened supply issues for rice and other crops.

However, last month’s result still fell below the 6.8% estimate by the Bangko Sentral ng Pilipinas (BSP) and median in a BusinessWorld poll.

The market is still pricing in inflation, with players noting the BSP may need to hike interest rates further to keep local yields competitive and quell inflation expectations.

The central bank has raised key rates by a cumulative 150 bps since May. It will hold its seventh rate-setting meeting on Nov. 15.

“There’s also some consideration on the rate hike trajectory of the Fed, as it is expected to hike again once this year and three times more next year,” Mr. Sta. Ana added.

He also noted that the BTr does not see much demand even at the shortest tenor of the curve.

“If you look at the bids, they hardly breached the amount on offer, so just about the offer side. We don’t see much demand, really — we are talking about the shortest possible [government securities],” he said.

Sought for comments, a bond trader said the auction result was expected as investors opted to stay on the sidelines.

“On the demand side, given that there’s some difficulty in terms of liquidity, we can expect [tepid demand] until the yearend,” the trader said in a phone interview.

“Unless we see a correction in the dollar-peso trading, meaning more inflows towards the peso, maybe we might not see that much demand for the T-bills.”

The Treasury is raising P270 billion form the domestic market this year through auctions of securities, offering P180 billion in T-bills and another P90 billion in Treasury bonds.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. •