THE GOVERNMENT partially awarded the Treasury bills (T-bill) on offer yesterday as rates climbed across all tenors due to market expectations of fresh monetary tightening by the local and US central banks.
The Bureau of the Treasury borrowed just P8.316 billion during the T-bills auction on Monday out of the P15 billion it intended to borrow.
This, even as the offer remained oversubscribed as total tenders reached P20.7 billion, lower than the P21.9 billion offered by banks and other financial institutions last week.
Broken down, the government rejected all bids for the 91-day tenor even as total offers reached P5.435 billion out of the P4 billion it wanted to raise.
Had the government accepted all tenders, the papers would have fetched an average rate of 3.966%, 41.7 basis points (bp) higher than the 3.549% last week.
Meanwhile, the Treasury awarded P5 billion as planned in the 182-day debt papers out of total bids amounting to P7.304 billion. The average yield ended 24.4 bps higher at 4.597% from the previous rate of 4.353%.
On the other hand, the government partially awarded the 364-day T-bills, accepting offers amounting P3.316 billion out of the total P7.999 billion and versus its P6-billion program. The average yield rose to 5.4%, 26.3 bps higher than the 5.137% tallied in the previous auction.
At the secondary market ahead of the auction yesterday, the three- and six-month papers were quoted at 4.5217% and 4.74%, respectively, while the rate of the one-year notes stood at 5.1777%.
At the close of the trading, the 91-day and 182-day T-bills rallied to fetch lower rates of 3.4569% and 4.4583%, respectively, while the 364-day papers were quoted higher at 5.1907%.
National Treasurer Rosalia V. De Leon said the Treasury decided to reject all offers for the 91-day papers because the rates bid by banks were too high.
“For the 91-day, [we made a] full rejection because of the outrageously high bids,” Ms. De Leon told reporters Monday. “[For the 182- and 364-day papers,] we made full and partial award because it’s aligned with our own estimates where the bids should be.”
She added that market players priced in their expectations of another rate hike from the Bangko Sentral ng PIlipinas (BSP) as well as the US Federal Reserve.
Earlier this month, BSP Governor Nestor A. Espenills, Jr. hinted on another rate hike, saying the central bank will “take strong immediate action” to respond to the emerging threats to prices and inflation expectations.
The BSP has cumulatively raised rates by 100 bps since May, with rates currently ranging at 3.5-4.5%.
Meanwhile, two more rate hikes in September and December are expected from the Fed as the benchmark 10-year US Treasury on Friday passed the 3% mark for the first time in more than a month at 3.003%.
“The [Fed] rate hike was already priced in [and also from the] BSP following the August inflation print,” Ms. De Leon added.
Local inflation picked up to 6.4% last month due to higher food and oil prices. This was faster than July’s 5.7% and August 2017’s 2.6%.
Meanwhile, a bond trader said the rates submitted by dealers climbed, especially for the 91-day papers.
“As expected, the bids submitted were quite high so BTr was forced to reject bids on the 91-day [T-bills],” the trader said in a phone interview.
The trader said the market also factored in the weak peso.
The Treasury is raising P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 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