Treasury may trim offer of one-year securities

THE BUREAU of the Treasury (BTr) will “revisit” its offer volume for the one-year government securities amid weak demand.
Deputy Treasurer Erwin D. Sta. Ana said the government might tweak the offer volume for the one-year Treasury bills following two auctions that resulted in rejections of bids for the tenor.
“For this quarter, we don’t have plans of changing it, but for the third quarter, we will revisit it,” Mr. Sta. Ana told reporters following the Treasury bond auction last Tuesday.
“In fact there’s a stark difference from the first to the second quarter so that shows we’re adjusting also depending on conditions,” he added.
Earlier this week, the Treasury rejected all bids for the 364-day security during its T-bills auction as offers only reached P4.58 billion, below the planned P6-billion borrowing.
The government also rejected all bids for the tenor during its April 30 auction. The P6-billion offer was undersubscribed as it received tepid demand from investors, amounting at just P2.98 billion.
Sought for comment, a trader said that the Treasury might tweak the volume allocation next month due to the lack of appetite for the one-year T-bills.
“That’s possible. The BTr may also decide on increasing the tenor for the 91-day [bills] but we’ll have to wait for their announcement,” the trader said.
The trader added banks and other financial institutions still prefer short-dated securities.
“The market still has the preference for the shorter tenors such as the 91-day tenor. The market also has the tendency to bid much higher than BTr preferred so they opted to reject.”
Another trader said the market prefers shorter-termed securities amid expectations of a rate increase in the future.
“They prefer short-term because it will allow them to reinvest at a higher rate when investors expect interest rates to go higher,” the trader said in a text message.
“More so, longer-dated securities will lose more in a rising interest rate scenario as yields have inverse relationship to prices.”
The Bangko Sentral ng Pilipinas (BSP) raised key rates on Thursday, marking the first tightening move in nearly four years at a time of five-year highs for inflation and robust economic growth.
The Monetary Board raised its rates by 25 basis points during their third review for the year. Rates now stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.
The BSP last hiked policy rates in September 2014, at a time when inflation was trending above their 3-5% target that year.
Inflation accelerated to a five-year high of 4.5% in April from the 4.3% logged the previous month.
The Treasury is holding two auctions per week this quarter — one for Treasury bonds and another for T-bills — from the previous once-a-week auctions to reflect increased borrowing requirements.
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. — K.A.N. Vidal