THE GOVERNMENT rejected all bids for its offer of Treasury bills (T-bills) on Monday as investors asked for higher rates due to bets of a hike at the Bangko Sentral ng Pilipinas’ (BSP) policy meeting this week.
The Bureau of the Treasury (BTr) did not award any T-bills during Monday’s auction even as tenders reached P23.53 billion, higher than the P15-billion offering.
Broken down, the Treasury did not award 91-day securities even as bids reached P13.3 billion, higher than the P5-billion program. Had the Treasury made a full award, the three-month tenor would have fetched an average rate of 1.759%, 22.8 basis points (bps) higher than 1.531% seen at last week’s auction, where the government raised P5 billion as planned via the tenor. This is also 38.46 bps above the 1.3744% quoted for the tenor at the secondary market prior to the auction on Monday, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.
The BTr also rejected the P7.33 billion in tenders for the 182-day dept papers, even as this was higher than the P5-billion plan. Had the BTr fully awarded its offer, the average rate of the six-month paper would have been at 2.215%, up 53.78 bps from the 1.6772% quoted for the tenor at the secondary market before Monday’s auction.
Lastly, the government turned down bids for the 364-day debt papers despite demand reaching P7.17 billion versus the P5-billion offer. Had the tenor been fully awarded, the one-year instrument would have been quoted at an average rate of 2.828%, 86.61 bps higher than the 1.9619% yield on the tenor at the secondary market.
The government did not award six-month and one-year papers last week.
“Market remains defensive and bracing for possible rate hike by the MB (Monetary Board) with stronger-than-expected first-quarter GDP (gross domestic product) growth,” National Treasurer Rosalia V. de Leon said in a Viber message to reporters after Monday’s auction.
The first trader said the auction result was “quite expected as the market is quite defensive before the MB meeting.”
“It seems participants are looking at a rate hike,” the first trader said in a Viber message. “Prior to Thursday’s meeting, the BSP mentioned that they are watchful of second-round effects of CPI (consumer price index).”
The second trader said the rejection is good for the market as the average rates were too high and would have caused the rest of the curve to move upwards.
“Additional pressure is not needed in the fixed-income market right now,” the second trader said in an e-mail, noting that the market is seeking direction amid uncertainties like the BSP’s policy review as well as the economic plans of the incoming administration.
With faster-than-expected GDP growth seen to put upward pressure on inflation, some market players are pricing in a hike by the BSP as early as its meeting on Thursday.
A BusinessWorld poll of 17 analysts conducted last week showed they are divided on the BSP’s next move, with nine betting rates will remain unchanged, while eight are expecting a 25-bp hike.
The Monetary Board will hold its third rate-setting meeting for the year on Thursday. The key policy rate has been at a record low 2% since November 2020, when the BSP cut rates by 25 bps.
Economic growth in the first quarter accelerated by a higher-than-expected 8.3% annually on strong household spending as lockdowns were eased, the Philippine Statistics Authority reported last week.
It was a reversal from the 3.8% decline in the same period last year and faster than the 7.8% growth logged in the final three months of 2021.
The latest GDP print beat the 6.7% median estimate in a BusinessWorld poll and is within the 7-9% target growth band of the government.
It also marked the fourth consecutive quarter that the GDP stayed in the positive territory. The first quarter’s GDP growth was the highest since the 12.1% recorded in the second quarter last year.
Meanwhile, inflation surged to a 40-month high of 4.9% year on year in April due to rising food and utility prices.
It was faster than 4% the previous month and breached the central bank’s 2-4% target. It also settled near the upper limit of the 4.2-5% forecast range in April.
The BTr is looking to raise P200 billion from the domestic market in May, or P60 billion via T-bills and P140 billion through Treasury bonds.
The government borrows from local and external sources to help plug a budget deficit capped at 7.7% of GDP this year. — T.J. Tomas