TREASURY BILLS (T-bill) on offer today will likely fetch slightly higher rates amid strong demand on the short end, as some investors expect the inflation to stabilize by next year.
The Bureau of the Treasury (BTr) is offering P15 billion worth of T-bills at its auction today. Broken down, the Treasury will raise P4 billion through three-month papers, P5 billion via six-month debt, and another P6 billion from the one-year T-bills.
A bond trader interviewed last week said rates of the T-bills on offer today will likely end mixed.
“For the 91-day [papers], it would be stable from its current level, while the 182- and 364-day [T-bills] may fetch rates 10-15 basis points (bp) from the previous auction,” the trader said in a phone interview.
During last week’s auction, the government made a full award of the T-bills it offered, borrowing P15 billion as planned. Rates of the 91-, 182- and 364-day papers climbed to 4.952%, 6.059% and 6.489%, respectively.
At the secondary market on Friday, the three-month, six-month and one-year debt were quoted at 4.6433%, 6.1385% and 6.295%, respectively.
The trader said market demand is skewed towards the short end of the curve as investors expect inflation to ease by next year.
“I would say that maybe some of the market players are looking at more stable inflation. Probably by 2019, we will be able to meet the BSP’s (Bangko Sentral ng Pilipinas) inflation target range of 2-4% in the first or second quarter next year,” the trader added.
The central bank forecasts the increase in prices of commodities to ease to 4.3% next year, from this year’s 5.2% projection. However, both are still higher than the 2-4% target range for 2018 and 2019.
Monetary Board Member Felipe M. Medalla said the proposed rice tariffication law — which would remove price import quotas set by the government and allow any private firm to source the crop abroad — will shave 0.7 percentage points of the headline inflation print.
Meanwhile, BSP Assistant Governor Francisco G. Dakila, Jr. added that the suspension of the scheduled P2-per-liter fuel excise tax in 2019 would also reduce inflation by 0.2 percentage points.
Inflation hit a fresh nine-year high of 6.7% in September, bringing the year-to-date pace to five percent.
“If investors think that inflation and yields would stabilize around these levels, it may be better to borrow for short-term then just lock in again on the long-term once it ease,” the trader said.
Another trader concurred, saying demand for T-bills is strong “while waiting for firmer leads.”
“For the T-bills auction, the rates can move sideways. It can be five bps lower across the board…from the previous auction,” the second trader added.
However, the first trader noted that the BTr can reject bids if it finds the rates offered by banks and other financial institutions unreasonable given that the Treasury is looking at tapping other fund-raising options such as offshore dollar bonds as well as floating-rate notes (FRN).
“If they push through with the FRN, probably they would be in a better position to reject the T-bills if they deem the rates are unacceptable.”
Deputy Treasurer Erwin D. Sta. Ana said the Treasury is looking at issuing FRN as well as retail bonds to compensate for the previous rejections it made previously.
An FRN or floater is a debt instrument that carries a varying interest rate, depending on a benchmark. However, it yields lower returns compared with fixed-rate papers of the same maturity date.
The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in T-bills and another P90 billion in Treasury bonds.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal

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