Gov’t fully awards T-bill offering at higher rates on Fed hike fears

THE GOVERNMENT made a full award of the Treasury bills (T-bills) it auctioned off on Monday even as yields went up due to rate hike concerns and tensions in Ukraine.

The Bureau of the Treasury (BTr) raised P15 billion as planned via the T-bills it auctioned off on Monday as total tenders reached P41.23 billion, almost three times the initial offer but lower than the P53.75 billion seen last week.

Broken down, the Treasury bureau raised P5 billion as planned via the 91-day securities from P13.57 billion in bids. The three-month debt papers fetched an average rate of 0.81%, rising by 10 basis points (bps) from the 0.71% seen last week.

The BTr also borrowed the programmed P5 billion from the 182-day securities it offered on Monday from P14.79 billion in tenders. The average rate of the six-month T-bills rose by 4.4 bps to 1.066% from 1.022% previously.

Lastly, the government made a full P5-billion award of the 364-day debt papers it offered on Monday as bids reached P12.874 billion. The average yield on the one-year instrument stood at 1.475%, up by 6.7 bps from 1.408% a week earlier.

At the secondary market prior to the auction on Monday, the 91- 182- and 364-day T-bills were quoted at 0.7726%, 1.058%, and 1.4553%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that T-bill rates moved up on heightened concerns about Ukraine.

Rates also went up on fears that the US Federal Reserve would hike rates by as much as 50 bps in March to fight rising inflation, she added.

US National Security Adviser Jake Sullivan warned that Russia could soon invade Ukraine, with an estimated 100,000 Russian troops posted near the border, Reuters reported. Escalating tensions increased prices for Treasuries, the dollar, and other safe-haven assets.

Meanwhile, Fed officials have been providing forward guidance about a possible rate hike by March, and quicker inflation bolsters the case for a more aggressive policy tightening.

The US consumer price index increased by 7.5% year on year in January, the quickest in four decades. It was faster than the 7.3% median estimate in a Reuters poll and the 7% in December.

Rates of T-bills went up on reduced demand as the market is expected to instead put their cash in the retail Treasury bonds (RTBs) to be offered starting this week, a trader said in a Viber message.

“I think that the main driver for yields for T-bills moving up from their recent lows would be the new RTB issuance this week. There will be a large incoming supply of bonds and investors will be monitoring the size of this issuance,” the trader said.

“Other factors would be inflation in the US and yields for US Treasuries in the secondary market, which are moving up.”

The BTr is looking to raise at least P30 billion from the five-year RTBs it is offering this month. The offer period for the peso-denominated debt is Feb. 15 to 28. There will also be a swap offer for bonds falling due on March 14 and July 4.

The Treasury canceled its scheduled auctions for seven- and 10-year papers on Feb. 15 and 22 to make way for its RTB sale.

In November, the government raised P360 billion from five-year RTBs with a coupon rate of 4.625%.

Retail bonds are targeted for small investors who want low-risk, higher-yielding savings instruments backed by the government.

Before it canceled the remaining two T-bond auctions for February, the BTr had planned to raise P200 billion from the domestic market this month, or P60 billion via T-bills and P140 billion from Treasury bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — Jenina P. Ibañez with Reuters