Gov’t partially awards T-bills as rates rise

THE GOVERNMENT partially awarded the Treasury bills (T-bills) it offered on Monday as investors wanted higher yields after September inflation quickened to its fastest pace in over 13 years, which could result in more rate hikes from the central bank.

The Bureau of the Treasury (BTr) raised just P3.97 billion via the T-bills it auctioned off on Monday even as total tenders reached P16.31 billion, above the P15-billion offer.

Broken down, the BTr borrowed just P1.27 billion through the 91-day T-bills, even with total bids reaching P7.58 billion, above the P5-billion plan. The average rate of the tenor rose by 150.1 basis points (bps) to 3.819% from the 2.318% seen on Sept. 5, the last successful award. Accepted rates ranged from 3.6% to 4.25%.

The Treasury also raised only P2.695 billion via the 182-day securities despite tenders reaching P5.645 billion versus the P5-billion program. The average rate of the six-month T-bill went up by 45.7 bps to 4.415% from the 3.958% quoted during for the last successful award on Sept. 26. Accepted rates ranged from 4% to 4.65%.   

Meanwhile, the BTr refused to award any 364-day debt papers, with demand for the tenor only reaching P3.081 billion versus the P5 billion on the auction block. Had the government accepted all bids, the one-year T-bill’s average rate would have climbed by 161.9 bps to 5.401% from 3.782% fetched for the last successful award on Aug. 22.

At the secondary market before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 3.1811%, 3.65%, and 3.8471%, respectively, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data provided by the Treasury.

“The auction was just slightly oversubscribed, attracting P16.3 billion in total tenders. With its decision, the Committee raised P4.0 billion of the P15.0 billion programmed offering,” the BTr said in a statement on Monday. 

“Given our good revenue performance, we have the latitude to reject should we find that rates are not reasonable,” National Treasurer Rosalia V. de Leon said in a Viber message.

The government’s revenue collections reached P2.4 trillion at end-August, up by 18.09% year on year and already at 72% of the full-year program of P3.3 trillion.

A trader said in a Viber message the Treasury made a partial award likely due to investors asking for higher rates as headline inflation reached a fresh peak last month, which could prompt the Bangko Sentral ng Pilipinas (BSP) to continue its tightening cycle.

“Looks like the BTr is not keen on awarding higher rates for shorter tenors. Investors in this space are demanding higher rates due to higher CPI (consumer price index) and BSP policy rate projections. So maybe, the BTr would rather be aggressive in awarding at higher rates if the tenor is longer,” the trader added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said the partial award was due to the high yields bid by banks after inflation hit a new high.

“The latest T-bill auction yields are now way higher than the comparable PHP BVAL yields. The ability of the National Government to reject is also partly due to the fresh $2-billion global bond bond issuance last week that would reduce the need for the government to borrow domestically,” Mr. Ricafort added.

Headline inflation picked up to its fastest pace in more than 13 years in September due to higher food costs.

The CPI was at 6.9% last month, up from 6.3% in August and 4.2% in the same month last year. It matched the 6.9% print in October 2018 and was the fastest since the 7.2% pace logged in February 2009.

The September print marked the sixth straight month that inflation breached the central bank’s 2-4% target for the year.

For the first nine months, headline inflation averaged 5.1%, faster than the 4% seen in the same period last year but below the BSP’s 5.6% forecast for 2022.

The Monetary Board has so far raised borrowing costs by 225 bps since May. Its next policy-setting meeting will be on Nov. 17.

BSP Governor Felipe M. Medalla last week said the central bank may need to continue tightening to ensure inflation is not threatened as the US Federal Reserve is also expected to hike rates further. The Fed has raised rates by 300 bps since March.

Still, Mr. Medalla said another off-cycle hike is unlikely this year as the BSP sees inflation already easing in 2023.

On Tuesday, the BTr will auction off P35 billion in fresh seven-year Treasury bonds (T-bonds).

The Treasury wants to raise P200 billion from the domestic market this month, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — Keisha B. Ta-asan