Ukraine war fallout: PH creditors seek higher yields for gov’t borrowings

The Ayuntamiento de Manila which houses the Bureau of the Treasury (From the Facebook account of the bureau)

MANILA, Philippines—The Bureau of the Treasury (BTr) on Monday (Feb. 28) rejected all T-bill bids as rates climbed across-the-board amid uncertainties wrought by a combination of the Ukraine-Russia war, higher domestic inflation, plus the US Federal Reserve’s forthcoming interest rate hike.

Monday’s treasury bill auction was the first domestic borrowing for March, as the awarded amount would have been settled on Wednesday, March 2.

However, the Treasury declined the total of P18.5 billion in tenders across the three tenors, despite 1.2 times oversubscription than the total P15-billion offering.

“The 91-, 182-day and 364-day T-bills fetched averages of 1.49 percent, 1.736 percent and 1.865 percent, respectively, higher than the previous auction as well as secondary market rates,” the BTr said in a statement.

Last week, the benchmark 91-day debt paper fetched an average rate of 0.899 percent; the 182-day, 1.157 percent; and the 364-day, an annual yield of 1.568 percent.

Bid rates from government securities eligible dealers (GSEDs) jumped to as high as 2.5 percent for three-month IOUs; 2.75 percent for six-month; and 2.2 percent for one-year, if they were fully awarded at P5 billion each. In contrast, the maximum bids tendered for treasury bills last week were only 0.94 percent, 1.2 percent, and 1.597 percent.

The lowest bid rates per tenor also increased to 0.875 percent for the 91-day (from 0.8 percent last week), 1.125 percent for the 182-day (from 1.089 percent), and 1.675 percent for the 364-day (from 1.499 percent).

National Treasurer Rosalia de Leon declined to comment on the rejected T-bill tenders as she was not around during the BTr’s auction. But when T-bills rose across-the-board last week, De Leon pointed to jitters wrought by the then-increasing tensions between Ukraine and Russia, coupled with the Bangko Sentral ng Pilipinas’ (BSP) higher annual inflation forecast for 2022.

Tensions at the Ukrainian-Russian border had since erupted into a full-blown war. Debt watcher Moody’s Investors Service last week said that among the second-round effects of the Ukraine-Russia war in Asia-Pacific were financial markets disruption, including of the debt market. Rising yields sought by local creditors will make it more expensive for the government to borrow to finance public expenditures.

The majority of economists polled by the Inquirer last week also expected a higher headline inflation rate in February than January’s 14-month low of 3 percent.

“Inflation likely returned to 3.2 percent in February… The helpful base effect in food is unwinding, and short-term oil pressures are rising,” Pantheon Macroeconomics senior Asia economist Miguel Chanco said in a report on Monday.

In a separate report, think tank Moody’s Analytics sees the Ukraine-Russia conflict spilling over to global food prices.

“It is interesting to note that Asia-Pacific does not directly import large quantities of food from Russia. The only exception is the Philippines, where wheat is the second-largest import from Russia,” said Tim Uy, Moody’s Analytics chief Asia-Pacific economist Steven Cochrane and associate director.

It did not help that the US Fed was expected to upsize its rate hikes — markets expected as much as 50 basis points during its March 16 meeting.

But not even recently rising yields stopped the BTr from planning to borrow more in March, with a total of P250 billion in T-bills and bonds to be offered during its weekly auctions.

The BTr’s March domestic borrowings program was bigger than January and February’s P200-billion each, but March will have five weeks to offer government securities, unlike the prior months’ only four weeks. In terms of weekly volume, the BTr kept P15 billion in treasury bills during auctions on Mondays, and P35 billion in T-bonds on Tuesdays.

The BTr’s weekly T-bill offerings will remain P5 billion each in the benchmark 91-, 182-, and 364-day short-dated debt paper. It will auction off three-year bonds on March 1; seven-year on March 8 and 22; four-year on March 15; and 10-year on March 29.

Last week, De Leon said March’s auction program was calibrated with the ongoing offering of five-year retail treasury bonds (RTBs), plus market appetite considering the BSP’s higher 2022 inflation projection, looming Fed hikes, as well as the war between Ukraine and Russia. The RTB offer will end Monday (Feb. 28).

The government had programmed to borrow P2.2 trillion this year, of which three-fourths will be raised locally through the issuance of treasury bills and bonds.

“By maintaining a bias towards domestic sources of funding, we not only protect the government from foreign exchange risks, but more importantly, during this time we can take advantage of the BSP’s support to maintain an accommodative monetary stance,” De Leon said during the RTB offering’s launch.

TSB