THE GOVERNMENT rejected all bids at yesterday’s auction of Treasury bills (T-bill) as banks asked for higher returns following growing expectations of a rate hike from the US Federal Reserve soon.

The Bureau of the Treasury’s offer yesterday was met with P21.3 billion in demand, slightly above the P20-billion program. Broken down, the 91-day debt paper saw demand worth P13.328 billion, higher than the P9 billion the Treasury offered yesterday. The offers had an average rate of 2.989%, up from the 2.67% fetched during the last auction.

The Treasury also rejected P3.81-billion worth of bids for the 182-day tenor, which fell short of its P6-billion offer. The bids averaged 3.265%, rising from the 2.854% fetched in the Feb. 12 auction.

Lastly, the 364-day debt papers attracted only P4.19 billion in demand, likewise below the programmed borrowing of P5 billion. If the Treasury had awarded the offer size, the average interest rate would have gone up to 3.428% from the 3.04% fetched during the previous auction.

At the secondary market before the auction, the 91-day paper was quoted at 2.9975% and the 182-day tenor at 3.6836%. The 364-day T-bill fetched 3.9496%.

At the close of trading, the three-month, six-month and one-year papers fetched lower yields at 2.974%, 3.025% and 3.4882%, respectively.

National Treasurer Rosalia V. De Leon told reporters after the auction that the unreasonable offers the banks gave prompted the Treasury to reject all bids.

“You see in terms of the increase, it’s not really reasonable to have such very big spikes in the bids that were offered today,” Ms. De Leon said on Monday.

She attributed the rise in yields to “imminent Fed rate hikes” and “very hawkish statements of Fed officials.”

A number of Fed officials have raised their economic forecasts as economic activities and the labor market in the US continue to strengthen at a solid pace.

This caused the market to expect the Fed to hike its interest rates as early as next month.

Last week, San Francisco Fed President John H. Williams said the US central bank should raise its rates “three to four times” this year, adding that the next rate hike should take place in the near future.

Meanwhile, the market is waiting for the testimony of newly minted Fed Chair Jerome H. Powell before the US House of Representatives.

“Though the demand [was there], it’s more of the yields they [offered]. It was high. If ever BTr accepted that, it would push the market to sell off, so they opted to reject it altogether,” a trader said when sought for comment.

Meanwhile, Ms. De Leon said February inflation data, which will be computed using a new methodology, and the implementation of the 19% reserve requirement ratio might normalize the bond market.

“As they move to the new methodology of inflation, [it might] normalize. And also once we see the liquidity to be unleashed in March,” she said.

The Treasury plans to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds in the January to March period. This is higher than the P200 billion it offered in the last quarter of 2017.

The government borrows from local and foreign sources to fund its budget deficit, which for this year is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal

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