Gov’t rejects all bids for T-bills as rates rise ahead of CPI data

THE GOVERNMENT rejected all bids for its offer of Treasury bills on Monday as invetors wanted higher rates. — BW FILE PHOTO

THE GOVERNMENT rejected all bids for its offer of Treasury bills (T-bills) on Monday as the market wanted higher rates on expectations of faster September inflation, which may prompt further tightening from the central bank.

The Bureau of the Treasury (BTr) did not award any T-bills on Monday as its offer went undersubscribed, with bids at just P14.2 billion versus the P15 billion on the auction block.

Broken down, the Treasury turned down all bids for the 91-day T-bills even as total tenders for the tenor reached P5.78 billion, above the P5-billion plan. Had the Treasury made a full award, the three-month debt paper would have fetched an average rate of 4.66%, surging by 234.2 basis points (bps) from the 2.318% fetched for the last successful award of the tenor on Sept. 5.

The BTr also rejected all tenders for the 182-day securities, with total bids coming in at P4.78 billion, lower than the programmed P5 billion. For a full award, the average rate of the six-month T-bill would have gone up by 94.40 bps to 4.902% from the 3.958% quoted for the tenor at last week’s auction.

Lastly, the government did not award any 364-day debt papers as demand stood at only P3.678 billion, below the P5-billion offer. Had the Treasury accepted these bids, the average yield on the one-year T-bill would have jumped by 115.5 bps to 4.937% from the 3.782% fetched for the tenor when they were last awarded on Aug. 22.

At the secondary market prior to the auction on Tuesday, the 91-, 182-, and 364-day T-bills were quoted at 3.153%, 3.8422% and 3.9022%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that the BTr rejected all bids for the T-bills as the rates sought by investors were too high.

“The rates offered are untenable even after considering aggressive statements from both Fed (Federal Reserve) and BSP (Bangko Sentral ng Pilipinas). The BTr is still in a good position to make a rejection with revenue outperformance,” Ms. De Leon said.

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

A trader said the market was “defensive” ahead of the release of September consumer price index (CPI) data on Oct. 5.

“Demand will probably shift to [Tuesday’s] three-year paper, especially if it is near 5.625% to 5.75%,” the trader said, referring to the scheduled auction of reissued T-bonds.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said yields were high on expectations of a faster September headline inflation print, which may prompt aggressive rate increases from the BSP.

“The weaker peso recently would also increase the odds of further local policy rate hikes,” Mr. Ricafort said.

Headline inflation likely peaked anew last month amid higher electricity rates and food prices, as well as the continued weakening of the peso versus the dollar, analysts said.

A BusinessWorld poll of 13 analysts yielded a median estimate of 6.7% for the September CPI, near the lower end of the central bank’s 6.6-7.4% estimate for the month.

If realized, this would be faster than the 6.3% print in August as well as the BSP’s 5.6% forecast and 2-4% target for the year.

BSP Governor Felipe M. Medalla last month said the central bank may need to continue hiking rates as the peso’s continued decline against the dollar due to a hawkish Fed poses a risk to inflation. The Monetary Board has hiked rates by 225 bps since May to rein in prices.

Meanwhile, the US central bank has raised borrowing costs by 300 bps since March, with Fed chief Jerome H. Powell earlier saying they are strongly committed to bringing down inflation and may need to keep rates high for longer to achieve this goal.

The BTr plans to borrow P200 billion from the domestic market this month, or P60 billion via T-bills and P140 billion from Treasury 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. — Diego Gabriel C. Robles