THE GOVERNMENT fully awarded the Treasury bills (T-bills) it offered on Monday as rates moved sideways amid strong demand for short-term debt papers and expectations of aggressive rate hikes from central banks due to growing inflation risks.
The Bureau of the Treasury (BTr) raised P15 billion as planned via T-bills at its auction on Monday as total tenders reached P54.12 billion, nearly four times as much as the program but lower than the P71.25 billion in tenders seen at last week’s auction.
Broken down, the BTr raised P5 billion as planned via the 91-day instruments as bids reached P26.23 billion. The average rate of the three-month T-bill went up by 2.1 basis points (bps) to 1.25% from 1.223% last week.
The government also made a full P5-billion award of the 182-day securities as the offer attracted P15.85 billion in bids. The average rate of the six-month tenor rose by 1.3 bps to 1.568% from the 1.555% fetched at the previous auction.
Lastly, the Treasury also raised P5 billion as programmed from the 364-day debt papers from P11.954 billion in tenders. The average rate of the one-year paper went up by 2 bps to 1.877% from 1.857% a week earlier.
At the secondary market prior to the auction, the 91-, 182-, and 364-day bills fetched rates of 1.2659%, 1.5051%, and 1.7997% respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.
National Treasurer Rosalia V. de Leon in a Viber message to reporters said the BTr made a full award of its T-bill offer as there was strong demand for shorter tenors due to fears of aggressive tightening by the US Federal Reserve.
“Market [was] biased on the short end, with anticipated aggressive Fed actions with combined policy rate hikes and balance sheet runoff, as reflected in Fed minutes,” she said.
A trader said via Viber that demand was skewed towards shorter tenors “given rising concerns on inflation and global central banks’ monetary tightening.”
“We have entered in a cycle of monetary tightening, not just onshore but also globally — therefore, investors are still anticipating for interest rates to rise,” the trader said.
“While there’s still a need for central banks to hike their rates to quell inflation, short-end bonds will continue to be market’s preferred choice of outlet,” the trader added.
Central banks around the world have been tightening their monetary policies to temper inflation despite lingering risks to economic growth.
A Reuters poll last week showed analysts expect the Fed to raise rates by 50 bps each for its May and June review to respond to runaway inflation. These analysts also expect a 40% probability of recession by 2023.
US inflation surged to 8.5% year on year in March, the biggest gain in four decades but still in line with market expectations, amid record high fuel costs.
Minutes of the Fed’s March meeting, where the central bank hiked borrowing costs from near-zero for the first time since 2018, also showed they plan to raise rates several times this year and trim their asset holdings.
At home, the Bangko Sentral ng Pilipinas (BSP) kept benchmark rates untouched for the 11th straight meeting last month but warned it could begin unwinding its pandemic-driven easy policy due to inflation risks. BSP Governor Benjamin E. Diokno earlier said the policy rate could reach up to 2.75% by next year from the current 2%, which is a record low.
Headline inflation was at 4% in March, matching the upper end of the central bank’s 2-4% target. It was quicker than the 3% in February, showing the impact of the surge in oil prices caused by the Russia-Ukraine war.
Meanwhile, a second trader in a Viber message said the auction result came as expected, adding that “demand most likely came from scheduled T-bill maturities.”
The second trader added that yields moved sideways from last week’s auction as the market is still waiting for a “major catalyst.”
On Tuesday, the BTr is auctioning off P35 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and three months.
The first trader said demand for the bond offer may be muted compared to Monday’s T-bill auction as investors continue to prefer shorter tenors amid fears over looming Fed and BSP rate hikes and rising inflation.
The BTr wants to raise P200 billion from the domestic market in April, 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 7.7% of gross domestic product this year. — T.J. Tomas with Reuters