High rates, low demand ruin gov’t borrowing plans this week

MANILA  -The government was unable to raise its planned amount of short-term and long-term borrowings at Tuesday’s sale of debt securities, as the Bureau of the Treasury grappled with anemic demand and higher rates following last week’s off-cycle tightening by the central bank.

The government was only able to borrow P12.75 billion out of the P15 billion it hoped to raise via Treasury bills (T-bills), auction results showed.

This, despite attracting total bids amounting to P21.94 billion, exceeding the original size of the offer albeit lower than the P23.36 billion total tenders seen in the previous week.

The decline in demand, in turn, pushed up rates for the sixth consecutive week. The yields were also “unusually much higher” this week after the Bangko Sentral ng Pilipinas (BSP) hiked its policy rate by 25 basis points in an off-cycle decision last Thursday, Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said.

Broken down, the average yield for the 89-day T-bill—the only tenor that was fully-awarded at P5 billion— went up 0.194 percent week-on-week to 6.343 percent, while the 179-day debt notes fetched an average yield of 6.462 percent, up by 0.132 percent.

The average rate for the 362-day securities, meanwhile, inched up by 0.113 percent to 6.592 percent compared to the previous week.

Treasury bonds

The decline in demand was worse for longer-dated debt notes.

Auction results showed the Treasury rejected all bids for the re-issued Treasury bonds (T-bonds) after total tenders underwhelmed at P26.9 billion, lower than the P30 billion that the government tried to borrow.

The tepid demand for the re-issued T-bond, which has a remaining life of five years and two months, translated to higher yield demanded by investors.

Had the Treasury made a full-award of the bids, the average rate for the T-bond would have reached 7.196 percent, higher than the 6.71 percent quoted for the comparable 5-year bonds at the secondary market as of October 27 based on PHP Bloomberg Valuation Service.

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The government borrows money from creditors at home and abroad to bridge its budget gap, which is capped at 6.1 percent of gross domestic product this year.

The Marcos administration plans to borrow P225 billion from domestic lenders in November. Of that amount, P75 billion will be raised via T-bills while P150 billion will come from sale of T-bonds.