THE GOVERNMENT rejected all bids once more at yesterday’s auction of Treasury bills (T-bill) as banks asked for higher returns ahead of an expected interest rate hike by the US Federal Reserve this week.

The Bureau of the Treasury rejected bids on Monday which totalled just P7.6 billion, well below the government’s planned P20-billion borrowing.

Broken down, the 91-day debt paper was met with demand worth P2.975 billion, lower than the P8 billion the Treasury offered yesterday.

The Treasury also rejected P2.325-billion worth of bids for the 182-day tenor, which also fell short of its P6-billion offer.

Lastly, the 364-day debt papers attracted only P2.276 billion in demand, likewise below the programmed borrowing of P6 billion.

Following the auction, National Treasurer Rosalia V. De Leon said the Treasury saw “unreasonable” offers during yesterday’s auction, prompting them to reject banks’ bids for the securities.

“Again, unreasonable offers were provided…during the auction. The committee decided for the full rejection in all tenors,” Ms. De Leon said, noting that bids carried rates about 45 to 60 basis points higher than yields seen at the previous auction as well as secondary market rates.

At the secondary market ahead of the auction yesterday, yields on the 91-day, 182-day and 364-day debt papers were quoted 3.1607%, 3.2929% and 3.1285% respectively.

The rates of the three-month and six-month papers were steady as trading closed, while the one-year paper saw its yield go up to 3.1495%.

“Given the inflation print of November and expectations that the Bangko Sentral ng Pilipinas (BSP) will hold rates steady, I think there’s no reason for the banks to ask for too high a rate,” Ms. De Leon said.

Analysts said the central bank will likely hold on to current policy settings this week as inflation and liquidity conditions remain manageable, despite “building” pressure due to the expected Fed rate hike.

Twelve economists tapped in a BusinessWorld poll late last week said the BSP Monetary Board will keep its policy stance unchanged at Thursday’s review, which follows the rate-setting meeting of the Fed.

Rates currently stand at 3.5% for the overnight lending rate, 3% for the overnight reverse repurchase rate, and 2.5% for the overnight deposit rate.

Analysts said current policy settings remain appropriate, with the growth momentum seen intact and with inflation easing from a three-year peak.

Commodity prices picked up by 3.3% in November, slowing from the 3.5% logged a month ago. This put the year-to-date average at 3.2%, matching the BSP’s forecast for the year.

The national treasurer also noted that lenders opted to bid higher for the T-bills ahead of the likely Fed interest rate hike this week.

“I think also, based on our surveys with the banks, they feel that they will really go with the high bids because of the expectation of the Fed rate hike next year,” Ms. De Leon said, noting that lenders’ enthusiasm has already subsided since “they’re already preparing to close the books.”

“They also [felt that] given the very liquid position of the Treasury, we will not also be inclined to accept high rates offered by the banks,” she added.

The Fed is expected to implement a 25-basis point rate hike at its two-day meeting on Dec. 12-13. More increases are also expected in 2018.

A trader interviewed shared the same sentiment, saying banks see the Treasury to be liquid brought by the successful issuance of retail bonds which was concluded last month.

When asked if the Treasury will be rejecting bids at its last auction for the year next week, the trader said: “When the rate is unreasonable, they will reject it because the Treasury has so much money for now. But we will see.”

At its auction last Nov. 27, the government also rejected all bids for the T-bills up for auction as it saw weak demand following its offer of retail Treasury bonds.

The Treasury rejected bids totalling P10.5 billion, falling short of the planned P20-billion borrowing.

Broken down, the 91-day debt paper was met with demand worth P3.995 billion, lower than the Treasury’s offer of P8 billion.

The Treasury likewise rejected P3.466 billion worth of bids for the 182-day paper, which also fell short of its P6-billion offer.

Lastly, the 364-day securities saw P3.021 billion in demand, also below the planned borrowing worth P6 billion. — KANV

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