Bids for T-Bills were rejected as market bets on GNP increase

THE GOVERNMENT declined all offers for their oonwardsTreasury bills (T-Bills) on Monday as investors called for higher interest rates amid betting on a rate hike at this week’s Bangkok Sentral ng Pilipinas (BSP) policy meeting.

The Bureau of the Treasury (BTr) did not award any T-bills during Monday’s auction, even though bids reached 23.53 billion pesos, more than the 15 billion pesos bid.

At a breakdown, the Treasury did not allocate 91-day securities even as bids reached 13.3 billion pesos, more than the 5 billion pesos program. Had the Treasury accepted a full bid, the three-month tenor would have yielded an average interest rate of 1.759%, 22.8 basis points (bps) higher than 1.531% at last week’s auction, where the government raised 5 billion pesos via the tenor as planned . This is also 38.46 basis points above the 1.3744% quoted for the term on the secondary market ahead of Monday’s auction, based on PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System website.

The BTr also rejected the bids for the P7.33 billion 182-day notes, although this was higher than the P5 billion plan. Had the BTr fully accepted its bid, the average price of the six-month notes would have been at 2.215%, up 53.78 basis points from the 1.6772% quoted for the term on the secondary market prior to Monday’s auction.

Eventually, the government turned down bids for the 364-day notes despite demand reaching P7.17 billion versus P5 billion supply. Had maturity been fully granted, the one-year instrument would have traded at an average price of 2.828%, 86.61 basis points higher than the yield of 1.9619% of maturity on the secondary market.

The government did not issue six-month and one-year papers last week.

“The market remains defensive and preparing more than expected for a possible MB (Monetary Board) rate hike fiGrowth in GDP (gross domestic product) in the first quarter,” National Treasurer Rosalia V. de Leon said in a Viber message to reporters after Monday’s auction.

The first trader said the auction result was “fairly expected as the market is quite defensive ahead of the MB meeting”.

“It seems that participants are considering a rate hike,” the first trader said in a Viber message. “Before Thursday’s meeting, the BSP mentioned that they are eyeing the second round of eonwardsects of the CPI (Consumer Price Index).”

The second trader said the rejection was good for the market as the average prices were too high and caused the rest of the curve to move higher.

“No additional pressure is needed in the bond market right now,” the second trader said in an email, noting that the market is looking for direction amid uncertainties such as the BSP’s policy review as well as the new government’s economic plans.

With faster-than-expected GDP growth likely to put upward pressure on inflation, some market participants are already pricing in a GNP hike at Thursday’s meeting.

A business world A poll of 17 analysts conducted last week showed they were split on the next move in BSP, with nine bet sets unchanged while eight expect a 25 basis point hike.

The Monetary Board will hold its third rate-setting meeting for the year on Thursday. The policy rate has been at a record low of 2% since November 2020, when BSP cut rates by 25 basis points.

Economic growth in the first quarter accelerated by a more-than-expected 8.3% per year on strong household spending as lockdowns eased, the Philippines’ statistics agency reported last week.

It was a reversal of the 3.8% decline in the same period last year and faster than the 7.8% growth in the final three months of 2021.

The latest GDP print beat the median estimate of 6.7% in a business world survey and is within the government’s target growth range of 7-9%.

It was also the fourth consecutive quarter that GDP remained in positive territory. First quarter GDP growth was the highest since the 12.1% recorded in the second quarter of last year.

Meanwhile, inflation rose to a 40-month high of 4.9% year-on-year in April on rising food and utility prices.

It was faster than 4% in the previous month and broke the central bank’s target of 2-4%. It also settled near the top of the forecast range of 4.2-5% in April.

BTr intends to raise P200 billion from the domestic market in May, or P60 billion via T-bills and P140 billion via government bonds.

The government is borrowing from local and external sources to plug the budget deficit, which is capped at 7.7% of GDP this year. — TJ Tomas

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