Gov't borrowing falls short amid higher yields
At A Glance
- The national government fell short of its target in selling short-term debt papers due to banks demanding higher returns.<br>- The auction for Treasury bills (T-bills) raised only P12.916 billion out of the intended goal of P15 billion. The total bids received during the auction amounted to P27.674 billion.<br>The government raised only P2.916 billion for the 364-day securities despite total bids reaching P8.458 billion. The average interest rate for one-year T-bills increased to 6.125 percent.<br>The average rate for the benchmark 91-day IOUs rose to 5.698 percent. The government successfully sold P5 billion worth of three-month papers as planned.<br>The average yield on the 182-day T-bills increased to 6.023 percent. The government also awarded the full amount of P5 billion for the six-month securities. <br>Market expectations of higher inflation contributed to the increase in interest rates.<br>Hawkish signals from the Bangko Sentral ng Pilipinas (BSP) suggested a potential local policy rate hike.<br>The temporary price ceiling on regular and well-milled rice could be extended until October, influencing the auction.
The national government faced difficulties in selling its short-term debt papers as banks demanded higher returns.
On Monday, Oct. 2, the Bureau of the Treasury held an auction for Treasury bills (T-bills) with the goal of raising P15 billion. However, the agency fell short of its target, managing to raise only P12.916 billion.
The total bids received during the auction amounted to P27.674 billion.
Specifically, the government struggled to meet its intended goal for the 364-day securities, raising only P2.916 billion despite receiving bids worth P8.458 billion.
The average interest rate for the one-year T-bills rose by 9.6 basis points to 6.125 percent, compared to the previous week's rate of 6.119 percent.
Similarly, the average rate for the benchmark 91-day IOUs increased by 10.3 basis points to 5.698 percent from 5.595 percent in the previous weekly auction.
However, the government successfully sold P5 billion worth of three-month papers as planned, with total bids reaching P10.010 billion.
Likewise, the average yield on the 182-day T-bills posted a slight increase of 5.5 basis points to 6.023 percent from 5.968 percent.
The government was able to allocate the full amount of P5 billion for the six-month securities, with total demands reaching P9.106 billion.
In the Bloomberg Valuation Service (BVAL), the yield on the three-month bill was higher at 5.705 percent, while the yield on the six-month bill stood at 5.983 percent.
The average rate for the 12-month bill was also higher in the secondary market at 6.194 percent.
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said the rise in interest rates can be attributed to market expectations of a further acceleration in the inflation rate during September.
Ricafort also said that the yields in the T-bill auction were influenced by hawkish signals from the Bangko Sentral ng Pilipinas, indicating a potential local policy rate hike either before or during the November rate-setting meeting.
Additionally, the auction was influenced by signals from local agriculture officials, who indicated that the temporary price ceiling on regular and well-milled rice could be extended until October.
“The ongoing RDB [retail dollar bond] offering could have also siphoned off some of the excess liquidity in the financial system,” Ricafort said.