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Treasury partially awards T-bills amid hawkish central banks

THE GOVERNMENT partially awarded the Treasury bills (T-bills) it auctioned off on Tuesday as traders demanded higher returns on the back of tightening monetary policy from central banks.

The Bureau of the Treasury (BTr) raised just P3.35 billion from the T-bills it auctioned off on Tuesday, way below the P15-billion program, even as bids reached P17.664 billion, as it again only awarded six-month papers for a third consecutive auction.

Broken down, the Treasury borrowed just P3.35 billion via the 182-day securities, even as bids reached P9 billion. The average rate of the tenor went up by 14.8 basis points (bps) to 3.958% from the 3.810% fetched last week. Accepted rates ranged from 3.900% to 4.000%.

Meanwhile, the government rejected all bids for 91-day T-bills, with tenders for the tenor hitting just P4.6 billion, below the P5-billion program. Had it been awarded, the average rate of the three-month paper would have gone up by 207.9 bps to 4.397% 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 P4.064 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 110.6 bps to 4.888% 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 2.7762%, 3.7042%, and 3.9280%, 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 “rates on [the] short end [were] very sensitive to aggressive actions of [the] Fed.”

A trader attributed the partial awarding to the recent policy rate adjustment of the Bangko Sentral ng Pilipinas (BSP).

Likewise, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that it had to do with the tightening of monetary policy.

“Again, the higher bid yields reflect the widely expected 50-bp local policy rate hike on Sept. 22, as well as the record US dollar-to-peso exchange rate,” Mr. Ricafort said in a Viber message, noting how a weaker peso could lead to higher inflation and further policy rate hikes.

“Local monetary authorities signaled possible surprise local policy rate hikes [and] more intervention in the local foreign exchange markets, both of which could help stabilize the peso exchange rate, as well as overall inflation,” he added, mentioning how the BSP is reacting to the Fed’s policy decisions.

The BSP increased its benchmark interest rates by 50 bps to 4.25% on Thursday, hiking borrowing costs by 225 bps since May to rein in rising prices.

The consumer price index climbed to 6.3% year on year in August from the nearly four-year high of 6.4% a month earlier and 4.4% a year ago. It was the fifth straight month that inflation exceeded the BSP’s 2-4% target this year.

BSP Governor Felipe M. Medalla said last month that the Fed’s aggressive tightening also poses an additional risk to domestic prices due to its effect on the peso.

The US Federal Reserve hiked its policy rates by another 75 bps last week while signaling larger increases to come as inflation is still way above its 2% target at 8.3% as of August. The central bank has raised key rates by 300 bps since March, including two other 75-bp moves in June and July.

The peso closed at an all-time low of P58.50 per dollar on Friday, losing one centavo from its P58.49 finish on Thursday, Bankers Association of the Philippines data showed.

The peso has weakened by 14.71% or P7.5 since then from its P51-a-dollar close last year.

On Wednesday, the BTr will auction off P35 billion in reissued 20-year Treasury bonds (T-bonds), with a remaining life of 16 years and four 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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