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Treasury partly awards T-bills before key meetings

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THE GOVERNMENT partially awarded the Treasury bills (T-bills) it auctioned off on Monday as traders demanded higher yields in anticipation of more rate hikes from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

The Bureau of the Treasury (BTr) raised just P3.162 billion from the T-bills it auctioned off on Monday, way below the P15-billion program, even as bids reached P16.288 billion, as it again only awarded six-month papers, similar to last week’s auction.

Despite the oversubscription, the auction committee decided to only partially award the 182-day tenor, while rejecting the bids for the rest, the Treasury said in a statement.

Broken down, the Treasury borrowed just P3.162 billion via the 182-day securities on Monday, even as bids reached P7.123 billion. The average rate of the tenor went up by 17.6 basis points (bps) to 3.810% from the 3.634% fetched last week. Accepted rates ranged from 3.700% to 3.900%.

Meanwhile, the government rejected all bids for 91-day T-bills on Monday, even as tenders for the tenor hit P5.965 billion, above the P5-billion program. Had it been awarded, the average rate of the three-month paper would have gone up by 159.4 bps to 3.912% from the 2.318% fetched in its last successful awarding on Sept. 5.

The BTr also refused to award 364-day debt papers, with demand only reaching P3.2 billion versus the P5 billion on the auction block. Had the government accepted all bids, the debt paper’s average rate would have climbed by 110.8 bps to 4.890% from 3.782% fetched for the tenor on Aug. 22, which was the last successful award.

At the secondary market before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 2.5669%, 3.4690%, and 3.9147%, respectively, based on the PHP Bloomberg Valuation Reference Rates data provided by the Treasury.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that markets asked for higher rates “as the Fed is expected to deliver another large rate hike, [which might] even [be] a full percentage point determined to quell inflation.”

“Nothing surprising as we are days away from the meetings of the Federal Open Market Committee and the Monetary Board,” the first trader said. “There are bonds with similar tenors as well that are trading at higher yields.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also attributed the second straight week of rejection for 91- and 182-day T-bills to high yields demanded by traders.

“Again, higher T-bill auction yields [are] largely due to market expectations of another large Fed rate hike of 75 bps to 100 bps to bring down still elevated US inflation of 8.3% in August, [which is] among 40-year highs [and] still way above the target of 2%,” he said in a Viber message.

“T-bill bid yields [are] also higher after the retail Treasury bond issuance effectively siphoned off from the financial system more than P300 billion in excess liquidity, net of the P108.5 billion from the exchange program,” he added.

The US consumer price index rose in August amid rising rent and healthcare costs, strengthening the case for another aggressive Fed rate hike this week.

Fed Chair Jerome H. Powell earlier said the central bank was “strongly committed” to fighting inflation. The Fed is meeting to review policy on Sept. 20-21 and has raised rates by 225 bps since March, including two 75-bp moves in June and July.

At home, the BSP will hold its policy meeting on Sept. 22. It has hiked borrowing costs by 175 bps since May to rein in rising prices.

A BusinessWorld poll last week showed 14 out of 15 analysts expect the BSP to fire off another rate hike on Thursday. Eleven see a 50-bp increase, while two expect a moderate hike worth 25 bps. Meanwhile, one is betting on a big 75-bp move.

BSP Governor Felipe M. Medalla said last month the central bank has room to hike borrowing costs further as inflation remains elevated, with the Fed’s aggressive tightening also posing additional risk to prices due to its effect on the peso.

Headline inflation eased to 6.3% in August from a near four-year high of 6.4% in July. This brought the eight-month average to 4.9%, higher than the central bank’s 2-4% target but still below its 5.4% forecast for the year.

The peso closed at an all-time low P57.43 per dollar on Friday, losing 27 centavos from its P57.16 finish on Thursday, Bankers Association of the Philippines data showed.

Meanwhile, the Treasury raised a total of P420.448 billion from the 5.5-year retail bonds it offered from Aug. 23 to Sept. 2, with P108.517 billion coming from the bond exchange program. The RTBs carry a coupon of 5.75% and were issued on Sept. 7.

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

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. — Diego Gabriel C. Robles

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