Gov’t fully awards T-bills at mostly higher rates

THE GOVERNMENT fully awarded its offer of Treasury bills (T-bills) at mostly higher rates on expectation of another hike by the Bangko Sentral ng Pilipinas (BSP) next week amid elevated inflation.

The Bureau of the Treasury (BTr) raised P15 billion as planned from its auction of T-bills on Monday, with bids reaching P43.77 billion.

Broken down, the Treasury made a full P5-billion award of its offer of 91-day securities as the tenor attracted P18.69 billion in bids. The average rate of the three-month paper went down by 24 basis points (bps) to 1.85% from the 2.09% fetched at the previous auction. Accepted rates ranged from 1.825% to 1.875%.

The government also borrowed P5 billion as planned via the 182-day securities as tenders reached P17.17 billion. The average rate of the tenor rose by 2.3 bps to 3.211% from the 3.188% fetched at the previous auction as accepted rates were from 3.19% to 3.25%.

Lastly, the BTr raised P5 billion from the 364-day debt papers as programmed, with demand for the tenor reaching P7.91 billion. The tenor’s average rate rose by 15.5 bps to 3.635% from the 3.48% fetched at the previous auction, with the government accepting offers with yields from 3.45% to 3.769%.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 2.123%, 2.871%, and 3.3693%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon told reporters in a Viber message that the average rate of the 91-day paper declined due to overwhelming demand as the market awaits the BSP’s Aug. 18 policy meeting.

Investors are “parking funds in the meantime,” Ms. De Leon said.

“The market is also looking for clues whether the Federal Reserve will pivot or sustain its rate hikes after the US payrolls report beat market estimates,” she added.

The first trader said the result was expected as the auction saw a strong turnout.

“This is basically investors putting their liquidity to work while waiting for justified directional leads in terms of inflation and view on policy rates,” the first trader said.

“Nothing surprising here. Just that the one-year space is reflecting the market’s view of higher rates moving forward,” the second trader said.

BSP Governor Felipe M. Medalla last week said the central bank may hike rates by 50 bps at the Monetary Board’s Aug. 18 meeting after headline inflation accelerated further in July.

The Monetary Board last month raised the benchmark interest rates by 75 bps in an off-cycle move, as it sought to contain inflationary pressures exacerbated by the peso’s weakening versus the dollar amid the Fed’s aggressive stance. It has raised rates by 125 bps so far since May.

Headline inflation quickened to 6.4% year on year in July, its fastest pace since October 2018, mainly due to soaring prices of food and higher transport costs.

The reading was faster than the 6.1% in June and 3.7% a year ago. It also settled at the high end of the BSP’s 5.6-6.4% forecast range for the month.

For the first seven months, inflation averaged 4.7%, higher than the 4% seen in the same period a year ago and the central bank’s 5% inflation forecast, but higher than its 2-4% target for the year.

Meanwhile, Fed Chair Jerome H. Powell said last month the US central bank may consider another “unusually large” rate hike at their Sept. 20-21 policy meeting as inflation in the world’s largest economy remains at a multi-decade high.

The Fed raised interest rates by 75 bps for a second straight meeting in July. It has hiked borrowing costs by a total of 225 bps since March.

On Tuesday, the BTr will auction off P35 billion in 10-year Treasury bonds (T-bonds) with a remaining life of six years and five months.

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. — Diego Gabriel C. Robles