Philippine Short-Term Bills Fetch Higher Yields as Fed Tightening Expectations Build
Key Takeaways
- •The of the Treasury made a full award of its Monday short-term offering, raising P52 billion from cash management bills and Treasury bills against tenders totaling P91.251 billion.
- •Average yields rose on every tenor, with the 364-day bill climbing 12.1 basis points to 6.043%, the 91-day bill up 8.3 basis points to 5.431%, and the 182-day bill rising 4 basis points to 5.821%.
- •The yield increases reflect expectations of further Federal Reserve tightening after the US central bank's first rate hike in three years, with rate futures pricing a 56% chance of an October move.
- •On Tuesday the government will seek P30 billion from reissued 20-year Treasury bonds with four years and nine months remaining, after canceling a planned rate-setting auction for fresh five-year fixed-rate Treasury notes.
- •The Treasury aims to raise up to P380 billion domestically this month, and each award at higher rates adds to the cost of funding a budget deficit capped at P1.659 trillion, or 5.4% of GDP.
The Philippine government made a full award of the short-term securities it offered on Monday, with yields rising across the board amid expectations of further policy tightening by the US Federal Reserve due to lingering inflation risks. Full awards at firmer rates mean the government paid more for every peso it borrowed, a running consideration as it works to finance this year's budget deficit.
The Bureau of the Treasury (BTr) raised a combined P52 billion from its offering of cash management bills (CMBs) and Treasury bills (T-bills), as total tenders reached P91.251 billion. That exceeded the P71.478 billion bids recorded last week, when the government offered P42 billion worth of T-bills alone.
Broken down, the Treasury borrowed P10 billion as planned through 35-day CMBs, with demand reaching P12.177 billion. The roughly one-month paper fetched an average rate of 5.124%, an increase of 8.8 basis points (bps) from the 5.036% quoted at the last award of these securities on Sept. 1. Bid yields ranged from 5% to 5.228%.
The government also raised its target P42 billion from the T-bill offering, as tenders totaled P79.704 billion — nearly double the amount on offer. The BTr said it made a full award after the auction attracted strong demand. Yields set at these auctions serve as reference rates for short-term funding costs across the domestic market.
For the 91-day tenor, the Treasury borrowed P20 billion against bids of P29.795 billion. The three-month paper fetched an average rate of 5.431%, up 8.3 bps from 5.348% the previous week. Accepted tenders carried yields of 5.349% to 5.499%.
The government raised P15 billion from 182-day papers as tenders hit P33.854 billion. The six-month T-bill's average yield stood at 5.821%, rising 4 bps from 5.781% previously, with awarded bid rates ranging from 5.78% to 5.848%.
Finally, the BTr sold P7 billion in 364-day securities, with demand for the tenor totaling P15.425 billion, more than twice the amount on offer. The one-year paper fetched an average rate of 6.043%, up 12.1 bps from 5.922% last week. Accepted yields ranged from 5.95% to 6.1%.
At the secondary market ahead of Monday's auction, the 35-, 91-, 182-, and 364-day bills were quoted at 5.0765%, 5.3699%, 5.7581%, and 5.9034%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.
Yields on the short-term debt offered Monday climbed across all tenors after the Federal Reserve last week raised interest rates for the first time in three years and signaled further tightening ahead, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. US policy shifts carry through to Philippine borrowing costs because the Fed's rate path shapes global capital flows into emerging markets such as the Philippines.
Hawkish guidance from the Fed has left rate futures wagering on a 56% chance of another hike in October, with a move by year-end considered a done deal, Reuters reported.
"Demand and yields went up due to anticipation of the local bond auction tomorrow, as the market seems to speculate that the yields awarded will be on the high end," a trader said in a text message.
On Tuesday, the government is looking to raise P30 billion from reissued 20-year Treasury bonds (T-bonds) with a remaining life of four years and nine months. That replaced the BTr's initial plan, since canceled, to hold a rate-setting auction for fresh five-year fixed-rate Treasury notes (FXTN). The sale will be watched for whether demand carries over to the long end after Monday's short-tenor borrowing drew heavy tenders at steeper rates.
The BTr last offered FXTNs in February, raising a total of P297.94 billion through new 10-year notes, with P235 billion coming from the new-money component of the offer and P62.94 billion from the switch program. The Treasury began offering FXTNs last year to establish new benchmarks and enhance market liquidity. These offerings are held under an issuance format targeting institutional investors such as corporates, cooperatives, trust funds, retirement funds, and provident funds.
The BTr aims to raise up to P380 billion from the domestic market this month, comprising P250 billion via T-bills and P130 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, is capped at P1.659 trillion, or 5.4% of gross domestic product, this year. Each award at higher rates therefore feeds directly into the cost of financing that gap. — A.M.C. Sy
