Gov’t hikes Treasury bill award as rates drop on strong demand

THE GOVERNMENT hiked the volume of Treasury bills (T-bills) it awarded on Monday as rates dropped across the board amid strong demand and steady inflation.

The Bureau of the Treasury (BTr) raised P21 billion via the T-bills on Monday, bigger than the programmed P15 billion, as the government accepted more non-competitive bids for all tenors to accommodate the strong demand seen for the offer. Total tenders reached P92.52 billion, making the offering 4.4 times oversubscribed.

Broken down, the BTr raised P7 billion from the 91-day papers, exceeding the initial plan to just raise P5 billion, as it accepted P4 billion in non-competitive bids versus the original program of P2 billion.

Demand for the three-month T-bills hit P26.359 billion. The tenor’s average rate fell by 5.9 basis points (bps) to 1.176% from the 1.235% fetched in the previous auction last week.

The Treasury also upsized the amount of 181-day T-bills it awarded to P7 billion from P5 billion originally, with total bids reaching P28.86 billion. The six-month debt papers fetched an average rate of 1.422%, down by 5 bps from 1.472% previously.

Lastly, the Treasury borrowed P7 billion via the 364-day securities versus the P5-billion program after the tenor attracted tenders worth P37.3 billion. The one-year IOUs were quoted at 1.649%, declining by 7.4 bps from the 1.723% fetched for the tenor last week.

National Treasurer Rosalia V. de Leon attributed the lower rates fetched for the T-bills to steady May inflation as well as good progress in the government’s vaccine rollout.

“Liquidity [was] further boosted with about P34 billion [in] maturities this week and redemption of P131 billion RTB (retail Treasury bonds) on June 13,” Ms. De Leon told reporters via Viber after Monday’s auction.

Expectations that inflation will start to decline by next month also contributed to the decline in T-bill rates, a bond trader said by phone.

Headline inflation was steady for the third straight month at 4.5% in May, the Philippine Statistics Authority reported last week, matching market expectations.

The figure was within the 4-4.8% estimate by the Bangko Sentral ng Pilipinas (BSP) for that month and also matched the median estimate in a BusinessWorld poll.

Year to date, inflation was 4.4%, higher than the 2-4% target of the BSP and its revised forecast of 3.9% for the year. May was the fifth month in a row that inflation went beyond target.

Meanwhile, Ms. De Leon said the lower-than-expected US non-farm payrolls figure released on Friday eased concerns about the Federal Reserve’s monetary tightening, which helped drive local yields lower.

Local rates likewise tracked the downtrend in US Treasury yields, the trader added.

US nonfarm payrolls data showed hiring increased in May as the pandemic eased, but not as much as expected, tempering expectations the Federal Reserve will tighten monetary policy sooner, rather than later, Reuters reported.

Nonfarm payrolls increased by a solid 559,000 jobs last month, helped by higher COVID-19 vaccination rates, but that was below the consensus forecast for 650,000 jobs added in May.

The softer-than-expected report means there is no urgency for the Fed to begin tapering its monthly purchase of $120 billion in bonds to support the economy.

The yield on the benchmark 10-year US Treasuries went down to 1.56% on Friday from 1.63% on Thursday.

On Tuesday, the BTr will offer P35 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 10 months.

The Treasury wants to raise P215 billion from the local debt market in June: P75 billion via weekly offers of T-bills and P140 billion from weekly auctions of T-bonds.

The government is looking to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.4% of gross domestic product. — B.M. Laforga with Reuters