A total P15-billion Treasury bills (T-bills) were awarded at Monday’s auction after monetary authorities again raised interest rates.
National Treasurer Rosalia V. de Leon told reporters investors are looking to lock in their funds in government securities as shown by the healthy bids posted by the market. De Leon believes the bids were driven by the recent announcement of the Bangko Sentral ng Pilipinas (BSP) Monetary Board (MB) of a 25-basis-point increase in rates.
“We [had] a good auction today, [with] oversubscription, and also the result in terms of the rates particularly for the 182-day and 364-day [tenor],” de Leon said, adding the hike in interest rates “more or less anchored inflationary expectations.”
The 91-day T-bill was awarded the full P4 billion with tenders reaching P4.740 billion, capping the security with a rate of 5.295 percent. This posted a 12.3-basis-point increase compared to the previous rate of 5.172 percent.
“Also the results of the past month for inflation were lower at 6.68 percent versus the 6.7 percent; and month on month it’s already trending downward,” she added. “We see that, more or less, inflation has already stabilized [and] hopefully, decelerating already.”
Bids for the 182-day IOU amounted to P11.928 billion, prompting the auction committee to award the full P5 billion on offer. The average annual rate for the security settled at 6.280 percent, showing a 3.50-basis-point rise compared to the previous auction rate of 6.245 percent.
“I think also that the Central Bank was able to cement, with a 25-basis-point hike, in terms of expectations on the inflationary path. So inflation expectations will already also be well anchored,” she said. “Investors see that we are able to already temper inflation with all these actions coming from the Monetary Board, as well.”
The 364-day tenor was awarded the full P6 billion on offer, with the tenders for the security reaching P13.612 billion, at an average annual rate of 6.530 percent. The rate showed a growth of 0.90 basis points compared to the previous rate of 6.521 percent.
It was the fifth rate hike for the year with the MB deciding to raise the interest rate on the overnight reverse repurchases (RRP) facility by 25 basis points to 4.75 percent, effective November 16, 2018. The interest rates on the overnight lending and deposit facilities were raised accordingly.
Monetary officials added they believe that prospects for the domestic economy remain generally favorable and allow some scope for a measured adjustment in the policy rate to rein in inflation expectations and preempt further second-round effects.
The MB said it deemed it necessary to respond with proactive policy action to help temper the risks to the inflation outlook, including those emanating from the continued uncertainty in the external environment, amid tighter global financial conditions and trade tensions among major economies.
Meanwhile, de Leon said the planned issuance of global bonds will not necessarily be done before the Federal Reserve System’s (the Fed) planned rate hike in December. She added the government is looking at favorable market conditions before issuing the security.
“[The hike is already] priced in,” she added.
She also explained that planned issuances of samurai and Panda bonds are still considered in the government’s menu of possible issuance nex year. However, the Treasury is looking to upsize its offering for the Panda bond compared to its first issuance.
“We’ve already mentioned that it’s also part of the overall menu, most likely [next year for the Panda bonds]; not for this year,” de Leon said. “But it would really be again subject to ‘good issue window’ for us. Of course, we are doing preparations, including discussions with Bank of China…. We are looking at the first half.”
She added the Bureau of the Treasury is open to “upsize” the bonds.
“If there is possibility to upsize then we will do that.”