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Gov’t fully awards T-bills as yields drop

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TREASURY BILLS (T-bills) on offer yesterday were fully awarded and more than thrice oversubscribed as they fetched lower yields, as liquidity was released resulting from the central bank’s trimming of its weekly term deposit offer.

The Bureau of the Treasury (BTr) raised P15 billion as planned through the T-bills, with the offer attracting as much as P52.3 billion in tenders.

The government awarded P6 billion worth of 91-day T-bills as expected as total bids reached nearly five times the offer at P29.429 billion. The papers fetched an average rate of 2.088%, down from the 2.143% recorded in the previous auction last Aug. 29.

The Treasury also generated P5 billion from the 182-day tenor after total tenders reached P11.035 billion, more than twice the offer. The average rate for the securities likewise slid to 2.564% from the 2.592% fetched during the previous offering.

For 364-day debt papers, the government sold P4 billion as planned as it attracted P11.790 billion in bids or almost three times its. The one-year T-bills fetched a 2.92% average rate, down slightly from the 2.935% posted in the previous auction.

At the secondary market before Tuesday’s auction, the 91-day, 182-day and 364-day T-bills were quoted at 2.9661%, 2.9804% and 3.0889%, respectively.

At the close of trading, yields on three- and six-month papers were steady, while the one-year T-bill’s rate rallied to close at 2.9004%.

National Treasurer Rosalia V. de Leon said they decided to make a full award of the papers given strong liquidity, as evidenced by the demand for the T-bills, with investors choosing to park their extra funds in government debt as the Bangko Sentral ng Pilipinas (BSP) trimmed offerings under its term deposit facility (TDF).

“We see the very liquid tone of the market, given that first the BSP has reduced the 28-day facility offer from P140 [billion] to P110 [billion]. So that’s P30 billion released liquidity,” Ms. de Leon told reporters yesterday at the close of the auction.

The BSP cut its weekly TDF auction offers due to weak demand seen in the past few months. Banks can now only bid for as much as P110 billion worth of 28-day term deposits from P140 billion previously, while the volume of seven-day instruments remained at P40 billion, bringing the weekly total to P150 billion.

Moreover, the official said the decline in rates was due to weaker US economic prospects.

“We’ve seen that for all three bucket tenors, the rates have gone down, given that first, we have very soft data coming out of the US, so expectations have been muted in terms of another rate hike in December,” the National Treasurer said.

“Then of course the impact of hurricane Irma. Growth prospects have slightly moderated,” added Ms. de Leon.

Three Fed policy makers last Tuesday expressed doubts about further rate hikes, with one influential policy maker calling for a delay in raising US interest rates until the Fed is confident inflation will rebound.

A second Fed policy maker blamed the Fed’s rate hikes to date not only for weak inflation, but also for undermining the recovery in the labor market that many policy makers including Fed Chair Janet L. Yellen have cited as they have justified raising rates. Late Tuesday a third policy maker advocated patience on rate hikes, given slow growth and inflation.

Taken together, the comments from one third of the Fed’s current policy-setting panel suggest that months of falling or flat inflation readings could scuttle plans to raise rates once more this year and three times next year. Fed policy makers next meet Sept. 19-20 and are due to release fresh economic forecasts that may envision a flatter path for rate hikes ahead.

Meanwhile, Hurricane Irma hit Florida on Sunday morning as a dangerous Category 4 storm, the second highest level on the five-step Saffir-Simpson scale, but by afternoon as it barrelled up the west coast, it weakened to a Category 2 with maximum sustained winds of 110 miles per hour.

A trader interviewed through phone said the auction result was expected, likewise noting soft key US economic data such as non-farm payrolls weakening further its gross domestic product prospects and consequently lowering the possibility of a rate hike by the US Federal Reserve.

“We expect that a possible rate hike is lower, so we’re expecting fewer rate hikes. That’s why demand for the papers is strengthening,” said the trader.

Another trader attributed the strong demand to the weaker peso.

“The peso has already been trading below P51, so that’s what’s driving demand,” he said.

The government is looking to borrow as much as P195 billion from domestic sources this quarter by offering P105 billion worth of T-bills and P90 billion in Treasury bonds, higher than the P180 billion it wanted to raise during the second quarter. — E.J.C. Tubayan with Reuters

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