Creditors turn to short-term gov’t IOUs amid rising interest rates

Local creditors mostly preferred short-term government debt amid high inflation which central banks here and abroad were trying to temper through higher interest rates, pulling down the yield of the benchmark 91-day T-bill on Monday.

The Bureau of the Treasury (BTr) raised P15 billion or the total amount it wanted to borrow during Monday’s auction, which will add to the record-high of P8.83 trillion outstanding locally issued government securities as of end-July.

While the BTr fully awarded P5 billion each in the 91-, 182-, and 364-day IOUs, it was only the three-month tenor whose average rate dropped to 1.85 percent from 2.09 percent last week.

“The 91-day bill declined amid overwhelming demand as the market is on wait-and-see for the Monetary Board’s rate action,” National Treasurer Rosalia de Leon said.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla last week hinted on a possible 50-basis point (bp) rate hike when the board meets on Aug. 18, in a bid to rein-in high inflation which hit 6.4 percent in July.

Government securities eligible dealers (GSEDs) offered to lend the BTr a total of P43.8 billion, or nearly thrice bigger than the offering. The largest chunk of GSEDs’ bids amounting to P18.7 billion were for the shortest tenor. De Leon said domestic creditors were “parking their funds in the meantime.”

The local debt market was “also looking for clues whether the United States Federal Reserve will pivot or sustain its rate hikes after the US payrolls report beat market estimates,” De Leon said.

On the flip side, six-month treasury bills fetched 3.211 percent, up from last week’s 3.188 percent; the one-year’s annual rate rose to 3.635 percent from 3.48 percent.

The latest BTr data on Monday showed that end-July’s outstanding IOUs further climbed from P8.77 trillion last June. Outstanding fixed-rate bonds rose to P8.29 trillion last month from end-June’s P8.22 trillion. Due to maturities, outstanding short-dated T-bills declined to over P537 billion from P544.2 billion a month ago.

The government had programmed to borrow P2.2 trillion this year, of which P1.65 trillion or three-fourths of total will be raised from treasury bills and bonds sale. The Philippines sources the bulk of its borrowings locally to take advantage of a liquid financial system and minimize foreign exchange risks.

This year’s borrowings will increase the national government’s outstanding debt to a new high of P13.4 trillion by end-2022. As of June, the debt stock stood at P12.8 billion.