T-bills on offer to fetch lower rates on demand
TREASURY BILLS (T-bills) on auction today will likely fetch lower yields on the back of strong demand for shorter-tenored securities.
The Bureau of the Treasury plans to raise as much as P20 billion from the short-tenored securities today.
Broken down, the government will auction off P9 billion in three-month debt papers, P6 billion in six-month T-bills, and P5 billion worth of one-year papers.
A trader interviewed on Friday said investors will likely compete to park their funds in the short end of the curve, which will, in turn, drive yields down.
“For the bills auction, we expect yields to be slightly lower by around five to 10 basis points across the board on strong demand in short-tenor securities,” the trader said.
At the last T-bills auction on March 12, the Treasury only made a partial award even as the offer was met with tenders of P26.6 billion, slightly above the P20 billion it placed on the auction block. It only accepted P13.2 billion amid higher rates sought by investors.
At that auction, the 91-day, 182-day and 364-day papers fetched 3.024%, 3.165% and 3.311%, respectively.
Meanwhile, at the secondary market on Friday, yields on the three-month, six-month and one-year papers stood at 3.267%, 3.3071% and 3%, respectively.
The trader added that the market has already priced in expectations about the monetary policy settings of the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve during the previous auctions.
“On the BSP and Fed rate hikes, those were largely priced in during previous auctions so we don’t see any reaction because the market already priced in the expectations.”
Last week, the Fed decided to raise its interest rates in line with market expectations. This puts the new benchmark overnight lending rate from 1.5% to 1.75%.
Fed Chair Jerome H. Powell attributed the hike to the “more stimulative” fiscal policy brought by the tax reform law passed late last year.
“Ongoing job gains are boosting incomes and confidence [and] foreign growth is in affirmed trajectory,” Mr. Powell added.
Meanwhile, the BSP kept its policy rates unchanged at its Thursday review, citing firm domestic economic activity and within-target inflation.
The central bank has been allaying concerns over faster inflation, saying that the higher prices of goods and services are only transitory.
On the demand side, the trader said the auction today might be 1.5 times oversubscribed.
“However, the BTr might still opt to partially award bids if they see [the rates are too high],” the trader added.
Today’s auction will be the last one for this quarter.
The Treasury wanted to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds in the January to March period — higher than the P200 billion it offered in the last quarter of 2017 — but has made several partial awards and rejections due to increasing rates.
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.
The government targets a P888.23 billion gross borrowing plan this year. — Karl Angelo N. Vidal
