Yields on T-bills climb on rate hike fears

By Janine Marie D. Soliman
Posted on February 14, 2017
http://www.bworldonline.com/content.php?section=Finance&title=Yields-on-T-bills-climb-on-rate-hike-fears&id=140580

The Bureau of the Treasury planned to raise as much as P15 billion worth of T-bills in 91-day, 182-day, and 364-day tenors during its auction of the shorter-termed papers on Monday, with total bids reaching P17.42 billion. However, authorities had to partially award all debt notes as investors sought yields higher than what the government was willing to pay.

The 91-day T-bills were partially awarded at P4.295 billion despite tenders reaching as much as P8.655 billion, above the P6-billion program. The papers fetched an average rate of 2.252% during Monday’s auction, 25.4 basis points (bps) higher than the 1.998% yield seen two weeks ago.

Similarly, the Treasury opted to reject several bids for the 182-day debt papers and awarded only P3.57 billion against its P5-billion offer as banks sought higher returns. Offers reached P5.02 billion, with the accepted rates fetching a 2.467% average that was 21.5 bps higher than the 2.252% seen during the Jan. 31 auction.

The offer of the 364-day T-bills attracted less investors after total bids reached only P3.745 billion, less than the government’s planned P4-billion borrowing. The Treasury awarded just P2.495 billion in the one-year papers and the average yield hit 2.766%, up by 19.5 bps from the previous auction’s 2.571% yield.

At the secondary market before yesterday’s auction, the 91-day, 182-day and 364-day T-bills were quoted at 2.4339%, 2.6786% and 2.9161%, respectively.

As trading closed, the rates of the three-month, six-month, and one-year papers went down to 2.1175%, 2.3663%, and 2.7169%, respectively.

During the Jan. 31 auction, the government was only able to raise P11.302 billion out of its planned P15-billion borrowing amid a jittery market ahead of the US Federal Reserve’s meeting early this month.

National Treasurer Rosalia V. De Leon said yesterday that the government had anticipated that investors would seek higher yields during Monday’s auction, and is also expecting this trend to continue as investors remain cautious over chances of a spike in local inflation as recognized by the Bangko Sentral ng Pilipinas (BSP) during its policy meeting last week.

“We just have to make sure that the rates don’t really go high because we recognize the market could be demanding higher rates because of the increasing inflation expectations,” she told reporters after the auction yesterday. “But at the same time we also have to calibrate… We don’t really see a big spike in terms of the increase in the rates… the graduation in terms of the yield curve was smooth.”

The BSP hiked its inflations forecasts for 2017 and 2018 to 3.5% and 3.1%, respectively, from 3.3% and 3% previously. Still, both projections were within the government’s 2-4% target band.

“I think rates are really going up, and even the market, they’re saying by March there’s already an expectation [that] BSP might already start the normalization of rates. Also in the case of the Fed, they’re also expecting the Fed will again take action in March,” the National Treasurer noted.

“So I think that’s also already incorporated in the bids submitted by the market,” Ms. De Leon said.

Sought for comment, a bond trader said in an interview that rates for all tenors were “very high” as investors were looking to political noise offshore, particularly in the United States and Europe.

“I guess market is still very wary of any comments made by [US President Donald J.] Trump on his ‘phenomenal’ tax plans, to which according to him, his plan was to reduce tax,” the trader said in a phone interview yesterday.

“So the market is still staying on the sidelines, not buying any securities, until they get a better picture of Trump’s plans, and if that’s the case, then it would add to their expectation that the BSP might also increase rates,” the trader said. “Because if Trump’s plans of tax cut is really good, then the Fed will follow on increasing their interest rates.”

Similarly, the Bureau of the Treasury said in a statement given to reporters after the auction: “Global uncertainty remains heightened awaiting a clearer direction for US fiscal and monetary policy as well as political moves in the Eurozone.”

For this quarter, the Treasury will be holding two auctions each for T-bills and Treasury bonds in a month. The government is looking to raise as much as P180 billion from January to March to fund its spending plans, with the Duterte administration looking to raise the budget deficit to 3% of gross domestic product.