Gov’t partially awards T-bills amid uptick in rates

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Facade of the Bureau of Treasury at Intramuros, Manila on September 15, 2014. — BW FILE PHOTO

By Karl Angelo N. Vidal

THE GOVERNMENT made a partial award of the Treasury bills (T-bill) offered on Monday, rejecting all bids for the longer tenors, as investors sought for higher returns on the back of rising inflation as well as uncertainty in the number of rate hikes in the US.

The Bureau of the Treasury only borrowed P5 billion during yesterday’s auction. It was met with tenders worth P14.97 billion, leaving P15-billion offering slightly undersubscribed.

Broken down, the government fully awarded P5 billion worth of 91-day T-bills, with tendered bids reaching P8.901 billion. The paper fetched an average yield of 3.346%, up from the 3.191% quoted at last week’s auction.

However, the Treasury rejected all the bids put up for the 182-day tenor which totalled P3.13 billion, falling short of its P4-billion offer.

The government likewise declined all bids for the 364-day T-bills as the offer attracted only P2.94 billion in demand, well below the programmed borrowing of P6 billion.

At the secondary market before the auction, the three-month, six-month and one-year papers were quoted at 3.51%, 3.7893% and 4.1454%, respectively.

As trading closed, the 91-, 182- and 364-day tenors saw their yields slip to 3.272%, 3.7857% and 3.321%, respectively.

Shortly after the auction, National Treasurer Rosalia V. De Leon said the government fully rejected the bids for the six-month and one-year papers as investors sought for higher returns.

“If [banks] are offering at a higher rate, at our end, we are also not comfortable with those higher rates… so we can still afford to reject,” Ms. De Leon told reporters yesterday, adding the Treasury “has a strong cushion in terms of buffer.”

Ms. De Leon also noted that banks priced in their expectations for domestic inflation and the rate hikes of the US Federal Reserve.

“I think it’s the inflation path. They still see the uptrend,” she said.

Inflation has been on a steady ascent for four months, hitting a three-year peak at 4.3% in March under the 2012 base year amid rising fuel prices and higher commodity costs due to the tax reform law.

Despite the steady rise of inflation rates, the Bangko Sentral ng Pilipinas said the implementation of the tax reform package is only transitory and that inflation will return to the 2-4% target band set by the government next year.

“And then, of course, the uncertainty how many rate hikes [from the] Fed. Obviously the path would be towards rate increases,” Ms. De Leon added.

During the March meeting of the Federal Open Market Committee, the Fed decided to hike its benchmark funds rate by a quarter-point. Fed officials have also upgraded their outlook on the US economy, suggesting a steeper path of rate adjustments until 2020.

Fed Chair Jerome H. Powell said last Friday that the monetary authority will likely need to keep raising interest rates to keep inflation under control, Reuters reported.

Sought for comment, a trader said the Treasury decided to reject bids for the longer tenors due to undersubscription.

“Apart from the fact that they have a solid cash position, I think they are looking at the tenders as well. The offers for the six-month and one-year are at P4 billion and P6 billion, respectively, and the tenders haven’t reached either,” the trader said.

The government is set to borrow P325 billion from the domestic market in the second quarter of the year through auctions of securities.

Starting this month, the Treasury will be holding two auctions per week — one for T-bonds and another for T-bills — to reflect increased borrowing requirements for the quarter.

The state 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.