September 21, 2017 | MANILA, PHILIPPINES

Gov’t partially awards T-bills as investors ask for higher returns

THE GOVERNMENT saw mixed results at its Treasury bills (T-bills) auction yesterday, raising only P7.7 billion out of the planned P15-billion borrowing, after returns sought by investors climbed across the board and amid uncertainties offshore.


The papers on offer yesterday were met with P18.6 billion in total demand, still exceeding the P15 billion worth of T-bills the Bureau of the Treasury had planned to issue at its second T-bills auction for this quarter.

The three-month and one-year tenors saw demand exceeding the amounts offered at Monday’s auction, while the six-month papers were undersubscribed. The government rejected bids for the 182-day T-bills after rates went above what the Treasury was willing to pay.

The government decided to partially award the 91-day T-bills, only raising P4.127 billion out of the P6 billion on offer. Total bids reached P9.162 billion and the debt notes fetched an average rate of 2.189%, 6.3 basis points (bp) higher than the 2.126% yield seen at the July 3 auction.

Similarly, the Treasury raised only P3.61 billion from the planned P4-billion borrowing from the 364-day T-bills even as total bids reached P5.93 billion. Yields sought by banks averaged at 2.995%, up 6.9 bps from the 2.926% quoted during the previous auction.

Meanwhile, the government rejected all bids for the 182-day papers after rates sought by financial institutions went as high as 2.679%, 18.2 bps higher than the 2.496% seen two weeks prior. Total tenders stood at P3.55 billion, below the P5 billion the Treasury put on the auction block.

At noon or before yesterday’s auction, yields on the 91-, 182- and 364-day T-bills settled at 2.7764%, 2.975% and 3.2232%, respectively.

The rates quoted for the three tenors were unchanged at the close of trading at the secondary market yesterday.

The National Treasurer attributed the mixed results to a general rise in government security (GS) yields in the previous weeks.

“It is what has happened even during the past two weeks already. We’ve been seeing that GS rates have been spiking,” National Treasurer Rosalia V. De Leon told reporters after the auction.

She said global uncertainties such as the US Federal Reserve’s recent hawkish remarks as well as some offshore central banks’ rhetoric on tightening policy rates contributed to the higher returns requested by banks in yesterday’s auction.

“The pronouncement coming out of the collective messages of the Fed, the central banks of England, in Canada, that they’re really already looking in terms of tapering already,” Ms. De Leon said.

Reuters reported that the Bank of England is mulling when would be the right time to hike rates, with most policy makers suggesting that anytime soon would not be prudent, even as some officials expressed the need for borrowing costs to rise.

Meanwhile, the European Central Bank could tweak their policy rates by September amid an improving economy in Europe. The Bank of Canada hiked interest rates for the first time in seven years last Tuesday.

This unison among global regulators came after hawkish views from the Fed on its plan to hike interest rates anew yearend after it decided to lift borrowing costs for the second time this year during their policy meeting in June.

“And at the same time, [Fed] Chair [Janet L.] Yellen, during her testimony to the US Congress, also indicated that the rate increase will continue and that they’re already considering at the same time unwinding of the bond portfolio of the Fed. We’ve also seen oil prices trending up,” the National Treasurer said.

Ms. Yellen said last week that the US economy is in good condition for regulators to hike interest rates gradually and not too fast to reach the neutral level, with the Fed also on track with its plan of trimming its over $4 trillion bond portfolio.

Asked why the government decided to partially award some of the papers and reject the bids for the 182-day debt notes, Ms. De Leon said the offers for the six-month T-bills were “very unusual,” noting: “That’s 18 bps higher than the previous auction so I don’t think we would really fall for that offer.”

As for the three-month and one-year securities, the National Treasurer said: “It’s aligned with our own calculations, our own estimates.”

Sought for comment, a bond trader said the auction yesterday was “not a good one.”

“But the rates were within market expectations. Not surprised that investors demanded higher rates because we have outstanding short-end bonds that can give similar yields,” the trader said.

Asked what other factors contributed to the state’s decision to partially award the papers, the trader said: “They are still in good cash position.”

The trader added that rates sought by banks rose as some investors prefer securities at the long-end of the curve.

“I think market is looking at longer tenors than T-bills because of higher yields,” the trader said.

The government plans to borrow as much as P195 billion from domestic sources this quarter -- through offerings of P105 billion worth of T-bills and P90 billion in Treasury bonds -- more than the P180 billion programmed in the second quarter. -- Janine Marie D. Soliman