Gov’t upsizes award of T-bills as bids soar amid pent-up demand

The government upsized the volume of Treasury bills (T-bills) it awarded on Tuesday, even as rates rose across all tenors, amid pent-up demand for debt following the holiday break and with interest rates expected to remain elevated in the near term.

The Bureau of the Treasury (BTr) raised PHP 17 billion via the T-bills it offered on Tuesday, above the initial PHP 15-billion program, as total bids reached PHP 39.945 billion or more than twice the amount on the auction block.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 13.36 billion. The three-month paper was quoted at an average rate of 5.14%, 14.4 basis points (bps) above the 4.996% seen at the last T-bill auction on Dec. 4. Accepted rates ranged from 5.4% to 5.88%.

The BTr likewise borrowed PHP 5 billion as planned via the 364-day debt papers as bids for the tenor reached PHP 12.225 billion. The average rate of the one-year T-bill went up by 9.7 bps to 5.829% from 5.732% previously. Accepted rates were from 5.498% to 6.7%.

Meanwhile, the government raised PHP 7 billion through the 182-day securities, above the original PHP 5-billion program, as bids for the paper reached PHP 14.36 billion. The average rate for the six-month T-bill stood at 5.578%, jumping by 31.1 bps from the 5.267% quoted the previous auction, and with accepted yields ranging from 5.328% to 5.85%.

At the secondary market on Tuesday, the 91-, 182-, and 364-day T-bills were quoted at 5.244%, 5.518%, and 5.867%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded bids for Treasury bills at today’s auction… The auction was 2.7 times oversubscribed, attracting PHP 39.9 billion in total tenders, prompting the committee to double the accepted volume of non-competitive bids for the 182-day T-bills. With its decision, the Committee raised PHP 17 billion compared to the PHP 15-billion initial program,” the BTr said in a statement on Tuesday.

“The substantial amount of awarded volume today represented some catch-up placements by investors after the prolonged pause in weekly issuances last December,” a trader said in an e-mail on Tuesday.

The Treasury did not hold auctions of government securities after the first week of December after completing its domestic borrowing plan.

T-bill rates rose due to hawkish signals from the Bangko Sentral ng Pilipinas (BSP) chief, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“T-bill rates moved up from last auction due to lingering expectations of elevated BSP policy rates for the earlier part of the year, which affect local short-term yields,” the trader likewise said.

BSP Governor Eli M. Remolona, Jr. last month said the central bank is unlikely to cut rates in the coming months and is leaning towards keeping borrowing costs higher for longer until inflation is comfortably within their 2-4% annual target.

The central bank raised benchmark interest rates by a cumulative 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%.

In the first 11 months of 2023, headline inflation averaged 6.2%, still above the BSP’s 6% forecast and 2-4% goal for the year.

A BusinessWorld poll last week yielded a median estimate of 4% for December headline inflation, within the BSP’s 3.6-4.4% forecast for the month. This is slightly slower than the 4.1% in November but significantly below the 8.1% in December 2022.

If realized, December could mark the first time that inflation met the central bank’s 2-4% target after 20 straight months. It would also be the slowest since the 3% print in February 2022.

This would bring the 2023 inflation average to 6%, matching the BSP’s baseline forecast.

The Philippine Statistics Authority will release December consumer price index data on Friday.

On Wednesday, the BTr will auction off PHP 30 billion in fresh three-year Treasury bonds (T-bonds).

The Treasury wants to raise PHP 195 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 120 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year. — A.M.C. Sy