THE GOVERNMENT made a partial award of the Treasury bills (T-bill) it auctioned off yesterday as rates of the shorter tenors increased despite the recently implemented cut in banks’ reserve ratio and expectations of easing inflation.

The Bureau of the Treasury (BTr) just raised P9.8 billion out of its P20-billion program on Monday, even as its offer attracted bids worth P36.5 billion.

The BTr rejected all bids for the 91-day papers even as it attracted P8.82 billion in tenders, above the P8-billion program.

Had the Treasury made a full award of the papers, they would have fetched an average rate of 3.281% or 28.6 basis points (bp) higher than the 2.995% fetched during the auction last Oct. 21.

For the 182-day T-bills, the government raised just P3.8 billion out of total bids of P9.85 billion as the securities fetched an average rate of 3.198%, 2.4 bps higher than the 3.174% quoted in the previous auction.

As for the one-year securities, the Treasury awarded P6 billion as planned at an average rate of 3.513%, 6.3 bps lower than the 3.576% fetched previously.

At the secondary market, the three-month, six-month and one-year papers were quoted at 3.177%, 3.344% and 3.601%, respectively, on Monday, according to the PHP Bloomberg Valuation Service Reference Rates.

National Treasurer Rosalia V. De Leon said the government rejected all the bids for the three-month papers as rates jumped despite an expected decline in inflation last month.

Inflation likely slowed further in October as a continued easing of prices of rice and fuel offset any upside pressure from pork substitutes amid the onslaught of African swine fever, according to a BusinessWorld poll of 14 economists conducted late last week.

The analysts also noted that base effects from the nine-year-high 6.7% headline inflation recorded in September and sustained in October last year also pushed inflation lower last month.

At the same time, they expect price pressures to pick up in this year’s remaining two months as base effects subside and consumption picks up ahead of Christmas.

Last week’s poll bared an estimate median of 0.8% for October inflation that, if realized, would mark October as the fifth consecutive month of cooling inflation, the second month that the pace clocked in below one percent, and the slowest clip in nearly three-and-a-half years or since April 2016’s 0.7%.

It is also within the lower half of the 0.5-1.3% October estimate which the Bangko Sentral ng Pilipinas (BSP) Department of Economic Research gave on Thursday last week.

The Philippine Statistics Authority is scheduled to report October inflation data on Nov. 5.

Ms. De Leon said despite strong liquidity, there might be “competing supply” in the market as banks issue more bonds and with the market looking for higher rates and preferring longer tenors instead.

“I guess also there are competing supply in the market with additional issuance from the corporates and the bank bonds that are coming up even with the flush in liquidity coming from the [reserve requirement ratio (RRR)] cut for this month and another cut coming in December. I think, still, the market is looking for higher yields so they are going for longer tenors,” Ms. De Leon told reporters after the auction.

Ms. De Leon added that rates for the longer T-bill tenors ended mixed as the market reacted to the RRR cuts this month and in December.

The reserve ratio of universal and commercial banks now stands at 15% following the effectivity of the 100-bp cut in RRR announced in September. Likewise, the RRR of thrift banks is now at five percent, while that for rural banks stands at three percent.

The BSP announced last month that the reserve ratio of universal, commercial and thrift banks will be slashed by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps. This cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions (NBQBs).

This will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent.

On the other hand, the reserve ratio of NBQBs will be cut to 14% next month.

Meanwhile, The bond trader interviewed by phone yesterday said the auction result for the one-year tenor was “in line with market expectations,” adding that the market wanted higher rates for the 91-day T-bills since the supply is enough.

“The total issue size on the 91-day T-bills were too big, P8 billion compared to 182-day and one-year. There’s already enough supply in the 91-day — that’s why they prefer higher rates. Since 2019 will be ending soon, we just have to accept the current schedule of BTr,” the bond trader explained in a mix of Filipino and English.

Ms. De Leon said the BTr will maintain its borrowing program for the quarter despite its recent rejections on bids and partial awards.

“For next week, the bond offering would be 10 years so there would be longer tenors. The succeeding issuance will be 20 years…which will be in time for the redemption that’s about P190 billion for this month,” she said.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in T-bills and P120 billion via Treasury bonds. — BML

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