Higher yield fails to spoil T-bills auction

MANILA, Philippines —Higher borrowing costs due to recent hawkish signals from the Bangko Sentral ng Pilipinas (BSP) did not stop the government from borrowing as planned during Monday’s sale of Treasury bills (T-bills).

Auction results showed the Bureau of the Treasury (BTr) raised its target amount of P15 billion in short-term debt despite rates going higher for the fifth straight auction.

Total demand for the T-bills amounted to P35 billion, more than twice the original size of the offer albeit lower than the P43.19 billion bids received during the previous week’s auction.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said yields went higher after BSP Governor Eli Remolona Jr. said that a rate cut in the first half of the year is “possible, but not likely”.

READ: Rate cut in H1 ‘possible’–Remolona

“Inflation risks remain, especially higher rice prices and other supply-related shocks that could risk missing the BSP’s inflation target of 2 to 4 percent target range (inflation not yet out of the woods),” Ricafort said in a commentary.

Rates for the 91-day T-bill averaged 5.306 percent, higher than the 5.226 percent seen last week.

Meanwhile, the 182-day debt securities fetched an average yield of 5.766 percent, more expensive than the 5.685 percent charged for the comparable tenor in the previous auction.

Rates sought by local creditors for the 364-day T-bill averaged 6.037 percent, higher than last week’s 5.999 percent.

Gov’t borrowing program

Documents from the budget department showed the Marcos administration is planning to borrow P1.85 trillion onshore in 2024.

READ: Gov’t unveils P585-B local borrowing plan for Q1 2024

Of that amount, P51 billion will be raised via T-bills while P1.8 trillion will come from weekly auctions of Treasury bonds.

Those borrowings are needed to help plug a projected budget hole of P1.39 trillion this year, which is equivalent to 5.1 percent of gross domestic product (GDP).

Based on latest government forecasts, it is only in 2027 that the budget deficit, as a share of the economy, is expected to return to pre-pandemic level at 3.2 percent.

Finance Secretary Ralph Recto said the government will remain “prudent” in its debt management by continuing to adopt a 75:25 borrowing mix in favor of domestic sources.

Such a strategy, he explained, would “mitigate foreign exchange risks, take advantage of the abundant liquidity in the country’s financial system, and support the development of the local debt and capital markets.”