BTr rejects all bids for one-year T-bills as rates rise on hike bets

THE GOVERNMENT partially awarded the Treasury bills (T-bills) it offered on Monday at lower rates as investors flocked to shorter tenors on expectations of more hikes from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The Bureau of the Treasury (BTr) awarded just P10 billion in T-bills at its auction on Monday even as total tenders reached P42.88 billion, nearly thrice as much as the P15 billion on offer.

The Treasury made full awards of the shorter 91- and 182-day tenors and rejected all bids for the one-year T-bill as investors wanted higher returns in exchange for keeping their money locked up for a longer duration.

Broken down, the government fully awarded the 91-day T-bills, raising P5 billion as programmed as tenders for the tenor reached P22.34 billion. The average yield of the three-month debt papers was at 1.46%, 21.5 basis points (bps) lower than the 1.675% seen at last week’s auction.

The BTr also raised P5 billion as programmed from the 182-day securities as bids for the tenor reached P14.96 billion. The average rate on the six-month T-bill was at 1.812%, down by 8 bps from the 1.892% fetched at the previous auction, where the government made a partial award of the tenor.

The 91- and 182-day tenors fetched yields of 1.4533% and 1.7681% at the secondary market before Monday’s auction.

Lastly, the Treasury rejected all bids for its P5-billion offer of one-year T-bills even as bids reached P5.58 billion. Had the government made a full award, the average rate of the one-year tenor would have been at 2.716%, 67.59 bps higher than the 2.0401% fetched at the secondary market prior to the auction, 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 the BTr made a full award of the 91- and 182-day tenors as they were over twice oversubscribed and fetched lower rates.

Ms. De Leon said they rejected all bids for the 364-day securities due to “tepid demand and unacceptable rates” as the market priced in expectations of hikes by the BSP and the Fed in their bids for the longest T-bill tenor on offer.

The first trader likewise said demand for the one-year T-bill was weak amid rate hike fears.

“Despite the prospects of higher policy rates in June, yields for the 91- and 181-day [T-bills] eased. I think most investors continued to be on wait-and-see and just prefer to park cash in short-term investments while waiting for firm leads,” the second trader said.

The BSP is likely to raise key interest rates by another 25 bps at its next policy review on June 23, its chief said last week.

“We are probably inclined to have another 25-basis-point adjustment on our next Monetary Board meeting which is on June 23,” BSP Governor Benjamin E. Diokno said.

The BSP raised benchmark interest rates by 25 bps on May 19, marking its first hike since November 2018, as it tries to temper rising inflationary pressures.

The Monetary Board increased the key policy rate by 25 bps to 2.25%. Interest rates on the overnight deposit and lending facilities were also hiked by 25 bps to 1.75% and 2.75%, respectively.

At that meeting, the central bank upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, exceeding the 2-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.

Inflation climbed to 4.9% in April, the highest in more than three years.

Meanwhile, all participants of the Fed’s May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation that they agreed had become a key threat to the economy’s performance and was at risk of racing higher without action by the central bank, Reuters reported.

This month’s 50-basis-point hike in the Fed’s benchmark overnight interest rate was the first of that size in more than 20 years and “most participants” judged that further hikes of that magnitude would “likely be appropriate” at the Fed’s policy meetings in June and July, according to the minutes released last week.

The BTr wants to raise P250 billion from the domestic market in June, or P75 billion through T-bills and P175 billion from Treasury bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas with Reuters