Gov’t partially awards T-bills as rates rise further

THE GOVERNMENT partially awarded its offer of Treasury bills (T-bills) on Monday at higher rates as investors remained cautious on expectations of further tightening by the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

The Bureau of the Treasury (BTr) raised just P13.95 billion from its offer of T-bills on Monday, even as total bids reached P27.176 billion, nearly double the P15-billion program.

Broken down, the Treasury raised P5 billion as programmed from its offer of 91-day securities as the tenor attracted P14.93 billion in bids. The average rate of the tenor climbed by 9.6 basis points (bps) to 1.855 from the 1.759% fetched at the previous auction. Accepted rates ranged from 1.8% to 1.91%.

The BTr also made a full P5-billion award of the 364-day debt papers, with total tenders reaching P6.75 billion. The average rate of the one-year tenor climbed by 17.6 bps to 2.63% from the 2.454% seen previously, with the government accepting offers ranging from 2.45% to 2.874%.

Meanwhile, the government partially awarded its offer of the 182-day debt papers, raising just P3.95 billion versus the P5-billion program, even as bids reached P5.5 billion. The average rate of the six-month tenor jumped by 26.8 bps to 2.4% from the 2.132% seen at last week’s auction, with the yields on the awarded bids at the 2.23-2.5% band.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 1.6262%, 1.9347%, and 2.4186%, 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 the BTr made a partial award of its T-bill offer as investors asked for higher returns after the BSP’s decision to hike rates by another 25 bps last week.

Ms. De Leon said investors wanted some cushion, with the BSP expected to continue raising borrowing costs to “let steam out of inflationary pressures.”

“Both the BSP and the Fed are expected to unleash another 25 bps [in rate hikes], if not 50 bps for the BSP in August, and a follow-up 75 bps for the Fed,” she added.

The first trader likewise said there was upward pressure on rates due to the BSP’s decision, noting that the bids seen for the longer six-month and one-year T-bills were just above the P5-billion offers for the tenors.

A second trader said in an e-mail that the rise in T-bill yields was expected after the BSP’s move, with the shorter 91-day tenor attracting bulk of bids at Monday’s auction.

The trader added that the BTr partially awarded the six-month tenor to cap the increase in its average yield.

“Overall, good participation from the market but still ways off from the volume we are seeing. We should be back to those once CPI (consumer price index) abates,” the second trader said.

The BSP last week raised benchmark interest rates by 25 bps for a second straight meeting to cool rising prices and continued to signal gradual normalization, even as it said it is prepared “to take all necessary policy action” to bring inflation within its target over the medium term.

The central bank raised its average inflation forecast for this year to 5% from 4.6% previously, well above its 2-4% target. For 2023, the BSP now sees inflation averaging 4.2% from 3.9% previously and then slow to 3.3%, back within target, in 2024.

Inflation rose to 5.4% in May, the highest in three and a half years, amid the continued rise in food and fuel prices.

Meanwhile, a week after hiking rates by 75 bps, which was the biggest increase since 1994, Fed Chair Jerome H. Powell told a US Congress hearing on Thursday that the US central bank is committed to bringing down inflation despite risks of a downturn, but said it is not trying to engineer a recession.

Markets are pricing in another 75-bp hike at the Fed’s July meeting as several Fed officials have said they would support more aggressive hikes as inflation remains high.

Monday’s T-bill auction was the last one for the month. The government raised just P62.414 billion via the shorter-termed debt papers against its P75-billion program for June after a number of partial awards due to rising rates.

On Tuesday, the BTr will offer reissued seven-year Treasury bonds with a remaining life of six years and 10 months at its last auction for June.

The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — T.J. Tomas