The Bureau of the Treasury (BTr) refused to sell a single Treasury bill (T-bill) on Monday, which marked the second time this year when auction officials decided on an across-the-board rejection of bids.
This development, the BTr said, resulted from an attempt by banks and financial institutions to jack up the cost of short-dated funds to an unreasonable and
unwarranted level.
According to National Treasurer Rosalia V. de Leon, the total rejection of bids was prompted by expectations of an interest-rate hike by the US Federal Reserve (the Fed). Such an adjustment was seen prompting the monetary authorities, the Bangko Sentral ng Pilipinas, to make similar policy-rate adjustments of their own.
“Again, unreasonable offers were provided during the auction, [forcing] the committee to make a full rejection in all tenors,” de Leon told financial reporters.
The auction committee received bids amounting to only P2.975 billion for the 91-day tenor when a total P8 billion was at stake on Monday. Had the auction committee accepted the bids, the three-month T-bill rate would have jumped 62.1 basis points to 2.769 percent, from only 2.148 percent at the previous sale.
The 182-day T-bills received bids amounting to only P2.325 billion, substantially lower than the P6 billion on offer. Had the auction committee entertained the offer, the six-month T-bill rate would have averaged 45.7 basis points higher to 3.020 percent, from only 2.563 percent at the previous auction.
As for the 364-day tenor, bids aggregated only P2.276 billion, versus P6 billion the Treasury wanted to sell. Were the national coffers empty and the Treasury in need of quick cash, the one-year T-bill rate would have similarly jumped 34.8 basis points to 3.30 percent, from only 2.952 percent at the previous auction.
Among the factors that contributed to high rates for the government securities include expectations of policy pronouncements from the incoming US Fed chairman and the closing of the book of accounts of the banks by the end of this year, according to de Leon.
“Based on our survey of the banks, the market feels we will not really go with the high bids because of expectations of a US Fed rate hike next year. At the same time, the banks are already preparing for the closing of the books and that the market knows the Treasury was inclined to accept the high rates offered by the banks today,” she added.
The BTr also said the government anticipates selling so-called ROPs which are dollar-denominated bonds early next year. ROP is shorthand for the sovereign, or the Republic of the Philippines.
De Leon said the BTr is watching the global bond markets closely for opportunities to tap the potential for comparatively cheap foreign financing no matter that the economic managers would rather borrow from domestic creditors.
She noted the bond markets already price the ROPs “much tighter” at present than in the recent past, following the credit upgrade the sovereign got from Fitch Ratings announced on Monday.
On Monday Fitch Ratings upgraded the long-term foreign currency rating of the Philippines to “BBB” with a stable outlook from the minimum investment grade of “BBB-.”
“We are pleased that Fitch is finally convinced that the Philippine economy now is much stronger and more resilient than in 2013, when they granted the Philippines its first investment grade credit rating of BBB-,” Finance Secretary Carlos G. Dominguez said.
Budget Secretary Benjamin E. Diokno also said the credit upgrade strengthens the consensus that the Philippine economy is among the fastest growing in the Asia-Pacific region.
“The Duterte administration welcomes the good news of the credit upgrade by Fitch Ratings Inc. The upgrade supports the growing consensus that the Philippines is one of the fastest-growing countries not only in the fast-growing Asia-Pacific region but also in the entire world,” Diokno said.
De Leon reiterated the government will maintain a borrowing mix for 2018 favoring domestic sources of funds over foreign lenders.
“Well, it depends on how things will evolve next year, on collection and expenditures. We are also looking into least cost financing for the republic. But still the preference would really be to source internally given the FX [foreign-exchange] risk. That is the plan, there is no revision of the plan as of now,” de Leon said.