Gov’t makes full award of Treasury bills

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FACADE of the Bureau of the Treasury headquarters. — PHOTO BY MELISSA LUZ T. LOPEZ

By Melissa Luz T. Lopez,
Senior Reporter

THE GOVERNMENT made a full award of the P15 billion it planned to raise through the auction of Treasury bills (T-bills) yesterday, with strong demand driving yields lower as market players scramble to get hold of short-term papers.

Offers received for Monday’s auction totalled P58.404 billion, nearly four times the amount which the Bureau of the Treasury wanted to raise as it auctioned off three-month, six-month, and one-year debt papers.

The government borrowed P6 billion under the 91-day term as it received overwhelming bids worth P27.81 billion. With the strong demand, the average interest rate slipped to 1.958%, down from the 2.032% fetched during the previous auction.

The Treasury also made a full award of the P5 billion programmed under the 182-day tenor, as banks and financial firms wanted to lend as much as P17.729 billion yesterday. In turn, yields dropped to 2.457% from 2.522%.

The 364-day papers followed this trend, with the government raising P4 billion out of the P12.865 billion tenders posted by market players. This drove the average yield sideways to 2.82%, coming from 2.861% fetched two weeks ago.

“It was very successful in the sense because we were able to reduce borrowing costs for the government,” Deputy Treasurer Erwin D. Sta. Ana said after yesterday’s auction, noting that strong demand for the short-termed papers drove interest rates down.

“Our GSEDs (government securities eligible dealers) are more comfortable in placing in the shorter end of the curve at this time. Basically there are risks-of course they are talking about the Fed rate hike sometime in December, and there are still ongoing geopolitical tensions in the area,” Mr. Sta. Ana added.

A bond trader described the auction turnout as a surprise, given that they were expecting rates to climb by five basis points last week.

“The demand stayed all in the short end because of the Fed rate hike,” the trader said, noting that the overwhelming bids reversed the trajectory of bond yields.

“As long as sentiment is towards a rate hike, players will go towards the short end. Nobody would like to be caught locking in funds in the long end because of the outlook of interest rates.”

The trader said banks still expect a fresh rate increase in the US despite a contraction in jobs last month, as players looked at rising average hourly earnings instead.

The government plans to raise up to P150 billion from domestic sources this quarter, lower than the P195 billion programmed between July-September.

Mr. Sta. Ana also said that they are looking to release a draft regulation that would govern the Treasury’s plans to identify “market makers” over the coming weeks, which is expected to guide market rates.

The Deputy Treasurer said the government is eyeing to name around 10 banks as market makers, who will enjoy certain privileges and obligations for the regular debt offerings.

Market makers are expected to provide guidance on rate bids during auctions of government-issued notes by bidding within a certain range.

Offhand, Mr. Sta. Ana said specific standards will be set for banks who will be tagged as such, including the volume and frequency of trades in the market as well as the bid submissions for Treasury auctions and in the secondary market.

On the other hand, Mr. Sta. Ana said the plan to issue $200 million of yuan-denominated bonds is yet hurdle the final approval from China’s National Association of Financial Market Institutional Investors, which is the last step before the government can proceed with the maiden issuance.

The Philippine government is looking to borrow up to P727.64 billion this year, higher than the P631.294-billion previously programmed to reflect the planned surge in public spending. A fifth of these loans will be sourced abroad, with the amounts expected to support the government’s infrastructure spending goals.