Gov’t rejects all bids for T-bills, 3-year T-bonds

THE GOVERNMENT rejected all bids for its offerings of Treasury bills (T-bills) and Treasury bonds (T-bonds) on Wednesday as investors asked for higher returns on expectation of faster October inflation and another large rate hike from the US Federal Reserve this week.

The Bureau of the Treasury (BTr) did not award any T-bills on Wednesday even as total tenders reached P16.085 billion, higher than the P15 billion on the auction block.

Broken down, the BTr rejected all offers for the 91-day T-bills, even with total bids reaching P8.485 billion, above the P5-billion program. Had the Treasury made a full award, the average rate of the tenor would have gone up by 245 basis points (bps) to 4.768% from the 2.318% seen on Sept. 5, the last successful award of the tenor.

The Treasury also turned down all bids for the 182-day securities as tenders reached only P4.93 billion versus the P5-billion plan. If fully awarded, the average rate of the six-month T-bill would have climbed by 132.6 bps to 5.284% from the 3.958% quoted for the last successful award on Sept. 26.

Lastly, the BTr did not award any 364-day debt papers, as demand for the tenor reached just P2.67 billion, lower than the programmed P5 billion. Had the government accepted these bids, the average rate of the tenor would have increased by 201.6 bps to 5.798% from 3.782% fetched for the last successful award on Aug. 22.

At the secondary market before Wednesday’s auction, the 91-, 182- and 364-day T-bills were quoted at 3.7503%, 4.5345%, and 4.888%, respectively, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data provided by the Treasury.

The BTr likewise did not accept any tenders for the fresh three-year T-bonds it offered on Wednesday even as total bids reached P36.336 billion, slightly higher than the P35-billion plan.

Rates bid by participants ranged from 6% to 8%. Had the offer been fully awarded, the average rate for the bonds would have reached 6.763%, 46 bps above the 6.303% quoted for the three-year tenor at the secondary market before the auction, based on the PHP BVAL Reference Rates data provided by the Treasury.

National Treasurer Rosalia V. de Leon said in a Viber message that the BTr rejected all tenders for the T-bills and T-bonds as the “market [was] pricing in excessive buffers to cover for the Fed’s sustained hawkish actions and the Bangko Sentral ng Pilipinas (BSP) forecast of October inflation.”

A trader likewise said in a text message that market participants remained cautious ahead of the Fed’s decision.

“Domestic inflation for October is about to be released also on Friday and with estimates to be above the 7% level, it clearly doesn’t bode well with sentiment for local bonds,” the trader added.

A second trader said the auction results were “somehow expected” as investors demanded higher yields.

“However, it also shows that investors are wary ahead of the Federal Open Market Committee meeting, domestic consumer price index, and the Bangko Sentral ng Pilipinas policy rate adjustment,” the second trader said in a text message.

The Fed was expected to announce its decision overnight. Markets were pricing in a fourth straight 75-bp hike from the US central bank, which would bring total increases since March to 375 bps.

Meanwhile, the BSP on Monday said October headline inflation could have settled at 7.1% to 7.9%, driven by rising food prices, higher transport fares and the peso’s depreciation.

If realized, October inflation would exceed the central bank’s 2-4% target for the seventh straight month. This would also be faster than the 6.9% seen in September and 4% in the same month last year.

A BusinessWorld poll of 14 analysts conducted last week yielded a median estimate of 7.2% for annual inflation in October.

The Philippine Statistics Authority will release October inflation data on Nov. 4.

The Treasury wants to raise P215 billion from the domestic market this month, or P75 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. — Luisa Maria Jacinta C. Jocson