Treasury to ramp up domestic borrowings in April
MANILA, Philippines—The Bureau of the Treasury will ramp up domestic borrowings in April by offering more T-bills and bonds to take advantage of easing rates and a financial system that remains awash in cash.
In a memorandum to all eligible government security dealers on Monday (March 29), National Treasurer Rosalia de Leon said a total of P170-billion worth of IOUs—P100 billion in short-dated treasury bills and P70 billion in T-bonds—will be auctioned off next month.
In the coming four Mondays of April, the Treasury will offer P25 billion each in T-bills—P5 billion in the benchmark 91-day, P8-billion in 182-day, and P12 billion in 364-day. The weekly volume will be bigger than the current P20-billion total offering for the short end of the curve.
The Treasury will also sell P35 billion each in bonds—five-year debt paper on April 6, and seven-year on April 20. In the past months, only P30 billion in treasury bonds were offered to investors per auction.
De Leon said the larger borrowing program for next month was “taking advantage of good liquidity conditions.”
It would also help that T-bill bid rates declined on Monday, reversing rising yields during the preceding weeks.
As such, P24 billion was raised from Monday’s auction, higher than the P20-billion offering.
The Treasury awarded P7 billion each in the three- and six-month IOUs, exceeding the P5-billion offer per tenor, or maturity periods, as it accepted double the non-competitive bids.
The average rates for the 91- and 182-day debt paper dropped to 1.269 percent and 1.609 percent from 1.336 percent and 1.718 percent last week.
The annual rate for the fully awarded P10 billion in one-year treasury bills also declined to 1.926 percent from 1.997 percent previously.
Across the three tenors, tenders totalled P79.3 billion, making the auction nearly four times oversubscribed.
The Treasury will also sell another P5 billion in the 364-day T-bills to the 11 eligible dealers through its tap facility window.
De Leon said the bid rates were “moderating as investors again flock to safe-haven assets” like government securities amid “sufficient” liquidity in the system.
Also, “as the Bangko Sentral ng Pilipinas (BSP) clarified, higher inflation is transitory, coming from supply-side constraints which non-monetary measures will address,” De Leon added.
Yields rose in recent weeks as headline inflation as of end-February averaged 4.5 percent, above the BSP’s 2-4 percent target range, mainly due to more expensive food, especially pork.
It did not help that domestic rates tracked climbing US treasuries on expectations of a stimulus-driven economic recovery and led to a sell-off in emerging markets.
But UK-based Pantheon Macroeconomics on Monday said that as far as inflation was concerned, the BSP was “wrongly obsessed with food prices; oil is where the real threat lies.”
“To be sure, we agree that food price pressures will be transitory, given their largely supply-side nature,” said Miguel Chanco, Pantheon senior Asia economist.
“But this downplays the big boost oil prices have already given to headline inflation, and most of the latter’s additional rise will stem from the former,” Chanco said.
“The BSP upgraded its average 2021 forecast for a barrel of Dubai crude oil to $61 per barrel, from $55 previously,” he said.
“In our view, this doesn’t go far enough, partly because it implies that the recovery is over. The average so far this year already stands at $60,” Chanco said.
“We maintain that the recovery has much further to run, going by the signal from Chinese demand with a barrel of Brent crude likely to average at $75 this year, up from $43 in 2020. Domestically, the pass-through in oil price effects will lift housing and utilities inflation the most,” Chanco added.
