Treasury bills to fetch higher rates at auction

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Facade of the Bureau of Treasury building — BW FILE PHOTO

YIELDS on Treasury bills (T-bills) on auction today are seen moving sideways as market players are on a wait-and-see mode amid lack of fresh leads while expecting the Bangko Sentral ng Pilipinas (BSP) to hike interest rates thrice this year.

The Bureau of the Treasury (BTr) plans to raise as much as P20 billion from the short-tenored securities on offer today.

Broken down, the government will auction off P9 billion in three-month debt papers, P6 billion in six-month T-bills, and P5 billion worth of one-year papers.

“We expect yields to probably move sideways or higher by up to 10 basis points across tenors,” a trader said over the phone on Friday.

In the last T-bill auction, the government only borrowed P16.5 billion out of the P20 billion it planned to raise, as the Treasury received offers worth P31.5 billion.

Broken down, the Treasury made a full award of the P9 billion programmed under the 91-day tenor as it received bids worth P18.72 billion. The average rate rose to 2.321% from the 2.233% fetched during the previous auction.

Meanwhile, the government only borrowed P4.615 billion in the 182-day T-bills out of the P6 billion it offered, even as it received P6.965 billion worth of tenders from banks. Following the partial award, yields went up to 2.577% from 2.519% in the previous auction.

The 364-day securities were also partially awarded, with the Treasury accepting just P2.853 billion out of the P5.853 billion put forward by market players.

At the secondary market on Friday, the three-month, six-month and one-year papers were quoted at 2.7105%, 2.8711% and 2.9265%, respectively.

In terms of demand, another trader said the Treasury might see demand 1-1.5 times bigger than the intended offering today, driven by “fears amid lack of fresh leads.”

The trader added that “market players still expect three rate hikes coming from the BSP” after the central bank decided to keep their benchmark rates steady at Thursday’s monetary policy meeting.

BSP Governor Nestor A. Espenilla, Jr. said in a statement read by Managing Director Francisco G. Dakila, Jr. that “the inflation path is expected to moderate and settle within the inflation target range…in 2019.”

Inflation accelerated to 4% in January, the fastest in more than three years, as the government attributed it to the impact of the first tax reform package, which slashed off income taxes while imposed excise tax on certain commodities.

As inflation is expected to overshoot the central bank’s 2-4% target, economists expect the BSP to tighten its rates as early as its March 22 meeting.

“A likely breach in the inflation target alongside intensifying external imbalances suggest that the central bank will need to hike policy rates. We expect tightening to commence in March,” economists Eugenia Fabon Victorino and Sanjay Mathur of ANZ Research said in a note.

Meanwhile, DBS economist Gundy Cahyadi said: “We reckon the BSP is prepping the market for a potential rate hike at its next meeting on 22 March.”

The Treasury plans to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds in the January to March period. This is higher than the P200 billion it offered in the last quarter of 2017.

The government borrows from local and foreign sources to fund its budget deficit, which for this year is capped at 3% of the country’s gross domestic product.

The government targets a P888.23-billion gross borrowing plan this year, 22.05% higher than last year.

Of this amount, P176.27 billion will be from external financing while P711.96 billion will be sourced locally.

Meanwhile, the government said its planned maiden issuance of yuan-denominated panda bonds was already approved by People’s Bank of China and National Association of Financial Market Institutional Investors (NAFMII).

“I am pleased to share with you that the issuance of Panda Bond was approved by People’s Bank of China and NAFMII [on] Feb. 9,” the Bank of China was quoted as saying by Finance Secretary Carlos G. Dominguez III in a Viber group message.

“The current plan is to launch in March,” National Treasurer Rosalia V. De Leon said, as shared by Mr. Dominguez.

“Of course, this is subject to good window and competitive pricing.”

In November, the government and the Bank of China have signed the underwriting agreement of the country’s maiden issuance of $200 million worth of yuan-denominated securities.

Ms. De Leon said in the statement that the bond issue will “diversify our funding sources and provide benchmarks for other Philippine issuers in the onshore market.”

Last month, the government sold $2 billion worth of 10-year dollar-denominated global bonds, raising $750 million worth of fresh funds while swapping $1.25 billion worth of old papers, with a rate of 3%. — K.A.N. Vidal