THE Bureau of the Treasury (BTr) received mixed results in its latest auction for Treasury bills (T-bills) on Monday, awarding P12.1 billion from the P15 billion on offer, with the market preference still seen to lean on the shorter- end of the curve.
National Treasurer Rosalia V. de Leon told financial reporters that market investor preference can still be seen to settle for shorter-dated securities since the rate for the 91-day tenor saw a contraction in terms of the rate.
For the 91-day IOU, the auction committee decided to award the full P4 billion on offer with tenders reaching as high as P13.528 billion. The average annual rate showed a contraction of 1.7 basis points to settle at 3.291 percent coming from the 3.308 percent in the previous auction.
“So even for the short-end of the curve, we still see that there is a lot of demand particularly so that they would just want to stay on the short [end], so we’ll see also what would be the market reactions when we auction the seven year [Treasury bonds] for tomorrow,” de Leon said.
She further explained that the market preference for shorter-dated securities may be in line with investors wanting to build buffers to minimize shocks from further rate hikes both on the domestic and offshore side, as well as inflation impacts.
“It’s nothing that we don’t expect coming from, again, still the persistent concerns on inflation and expectations on the BSP [Bangko Sentral ng Pilipinas] that will again hike [rates], make the move this August. And also coming from the print of the US [United States] inflation last Friday, [that] there would also be the likelihood that the Fed [Federal Reserve System] will also have a rate hike. So all these are the persistent concerns of the market. They are already putting some buffer in terms of the rates to make sure that they will be covered because of the rate hike,” she added.
The 182-day security was partially awarded P3.424 billion with tenders reaching P8.086 billion, The average annual rate for the security was capped at 4.185 percent. This showed an expansion of 14 basis points from the previous auction rate of P4.046 percent.
Bids for the 364-day T-bill reached P6.587 billion but the auction committee decided to partially award the tenor with P4.677 billion, capping the rate at 4.767 percent. From the 4.670 percent annual average rate in the previous auction, the current rate represented an increase of 9.7 basis points.
Over the May-June period this year, the Monetary Board raised interest rates by a total of 50 basis points, bringing the BSP’s overnight borrowing, lending and deposit rates at 3.5 percent, 4.0 percent and 3.0 percent, respectively.
Total tenders made by the market investors reached P28.2 billion for the set of T-bills with P15 billion on offer, and the auction committee awarding only a total of P12.1 billion.
Meanwhile, de Leon also pointed out that the economy continues to sustain its growth trajectory with the country’s debt to gross domestic product (GDP) ratio within the 42- percent mark with a downward trajectory in the medium-term. She said that borrowings made by the government are not just for paying debt but will also fund social services and infrastructure programs of the government, which in turn will help the economy grow.
“You have to look at it not from the nominal amount, you have to look at it because the economy is also growing. So the debt to GDP will remain constant at about 42 percent. So we are still better off…,” she said.
The national government earlier revealed that it has programmed a borrowing mix of P1.19 trillion for 2019, with external borrowings accounting for P297.2 billion of the total and domestic borrowings at P891.7 billion for the year.
“We are using the debt to be able to expand the economy. It’s not just going to be used to pay for liabilities, it’s also for infrastructure. We are borrowing to expand the economy, it’s going to be put into productive spending, to fund social services and infrastructure. We have a 3.2 percent deficit. We have the ability to pay because we are generating revenues. Our debt ratios continue to be prudently managed because it stays at the 42 percent level and would decline,” she added.
Earlier in the month, the DBCC had adjusted the country’s borrowing mix for next year to a 75:25 ratio, still favoring domestic lenders, coming from a 65:35 borrowing mix this year. The deficit ceiling programmed by the DBCC for 2018 is at 3 percent, and the ceiling for 2019 is at 3.2 percent.