‘The only game in town’: P24B in T-bills sold as rates pulled down by low inflation, oil prices

Lower global oil prices and prospects of slower inflation in April pulled T-bill rates down, allowing the Bureau of the Treasury to sell P24 billion or P4-billion more than its offering last Monday (May 4).

The Treasury awarded P7 billion in the benchmark 91-day IOUs at an average of 2.479 percent, down from 2.617 percent last week.

It sold another P7 billion in 182-day treasury bills at 2.625 percent, down from 2.831 percent previously.

For the 364-day T-bills, P10 billion was sold at an annual rate of 2.945 percent, down from 3.054 percent.

The Treasury was supposed to sell only P5 billion each for the three- and six-month securities, but doubled the accepted non-competitive bids for both tenors to P4 billion.

Across the three tenors, bids reached a total of P99.6 billion, making the auction almost five times oversubscribed from the original P20-billion offering.

National Treasurer Rosalia V. de Leon attributed the declining rates to “lower inflation expectation with low oil prices.”

Headline inflation rate in April was expected to slide below the three-month low of 2.5 percent recorded last March. The government will release the April inflation figure on Tuesday, May 5.

Global oil prices fell below zero last month due to lack of demand while the COVID-19 pandemic tortured economies worldwide.

Also, De Leon said that investors were “influenced still by ample liquidity and cut in policy rates.”

The Bangko Sentral ng Pilipinas (BSP) had reduced banks’ reserve requirement ratio (RRR), allowing the financial system to be flush with liquidity.

The BSP also last month made a surprise 50-basis points reduction in key interest rates, bringing the cumulative cut so far this year to a hefty 125 bps.

“Government securities are the only game in town,” De Leon said.

To take advantage of strong demand for one-year T-bills, the Treasury will sell another P10 billion to its 11 authorized dealers.

Last week, De Leon noted that the Treasury had been “able to mobilize more from tap facilities because of low rates and oversubscription” of the weekly auctions.

De Leon had said that the Treasury will first “have to see market developments and assess funding costs versus other markets” before issuing renminbi-denominated panda bonds and yen-denominated samurai bonds in the first half of 2020, which was the plan before the COVID-19 pandemic struck.

Last week, the Philippines raised $2.35 billion from US dollar-denominated global bonds at record-low coupons, on top of 1.2 billion euros in euro-denominated bonds across two tenors last January.

Edited by TSB