Gov’t partially awards T-bills as rates rise

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THE Bureau of the Treasury headquarters in Manila — PHOTO BY KARL ANGELO N. VIDAL

By Elijah Joseph C. Tubayan

THE GOVERNMENT made a partial award of the Treasury bills (T-bill) it planned to raise on Monday as yields increased across tenors due to the hawkish tone of the US Federal Reserve.

The Bureau of the Treasury’s offer yesterday was met with tenders of P26.6 billion, slightly above the P20 billion it placed on the auction block, but only accepted P13.2 billion amid higher rates.

Broken down, the government just borrowed P7.773 billion in 91-day notes, below the programmed P9 billion despite bids reaching P16.123 billion. The paper fetched a 3.024% average yield, up from the 2.67% quoted in the previous auction.

For the 182-day tenor, only P3.515 billion of the P6.715 billion banks and financial firms wanted to lend was accepted, about half the P6 billion the Treasury wanted to raise. The average yield rose to 3.165% from 2.854% previously.

Meanwhile, the government borrowed only P1.885 billion via the 364-day T-bills even as tenders reached about twice as much at P3.785 billion, below the P5-billion offer. Yields fetched likewise rose for the one-year paper at 3.311% from the 3.04% in the previous auction.

At the secondary market before the auction, the three-month papers were quoted at 3.4523%, while the six-month tenor fetched 3.7143%. The yield on the one-year T-bill was at 3.0441%.

Yields on the papers increased as trading closed, with the 91-day T-bills fetching 3.469%. The 182-day securities saw its rate rise to 3.7321% and 364-day papers also climbed to fetch 3.6851%.

“Again we have to align our awards regarding the rates in terms of our secondaries,” National Treasurer Rosalia V. De Leon told reporters yesterday when asked why the auction committee decided to do a partial award.

She noted that there is uncertainty in the market over possible interest rate hikes from the Bangko Sentral ng Pilipinas (BSP) as well as the US central bank.

“The bids were higher than our own estimates, given that market has uncertainty over the rate hike. Of course, the trajectory (of the yields) is really going up, but in terms of how many hikes there [will] be for both the Fed and the BSP, so that remains an uncertainty,” said Ms. De Leon.

Traders meanwhile said that the auction results were expected, noting the future rate hikes here and in the US as well as the latest local inflation figure.

“This is expected because of the recent spike in yields across the board, including the US Treasuries…and also the strong numbers like the non-farm payrolls data in the US especially,” a bond trader said in a phone interview.

“Likewise, a hawkish stance from the US central bank,” the trader added.

Another trader said the market was pricing in the latest inflation figure the Philippine Statistics Authority (PSA) released last week.

“Inflation is now higher, so that has an effect that brought about higher yields across. So this is expected,” the second trader said in a separate interview over the phone.

Headline inflation picked up to 3.9% last month using the new 2012 base year, up from 3.4% in January and the 3.1% reading in February 2017. Using the previous 2006 base year, inflation stood at 4.5%, above the BSP’s 2-4% target range.

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.